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Norvik Research 03.02.2017

03/02/2017 18:28

Global developments

Stock markets and the dollar are rising ahead of today’s US labour market data. Market consensus is for an increase in non-farm payrolls in January of 180K, after 156k in December. The dollar index is up 0.3%. EURUSD is down 0.2% at 1.073. 10-year UST yields are up 2bps at 2.49%, 10-year Bund yields are 1 bps lower at 0.44%. S&P 500 futures are up 0.3%. Nikkei 225 is flat. EuroStoxx 600 is up 0.6% today. Industrial metal prices are lower after China’s factory data came out below expectations. Gold prices are 0.2% lower.

Oil prices are broadly unchanged as market focus has shifted to risk of new US sanctions against Iran. Brent prices are up 0.3% at $56.8/bbl.

Russia and CIS area developments and market colour

This morning, Russia’s Finance Ministry published its estimate for windfall hydrocarbon revenues in February. Revenues in excess of budget projections have been estimated at RUB 113.1bn or $1.9bn at the spot exchange rate. This translates into daily FX interventions of RUB 6.3bn ($106mn) over 18 trading sessions between 7 February – 6 March. The daily size of interventions is marginally above the higher end of market projections, of $100mn, leaving the rouble little changed post-announcement. At the current level of oil prices the projected increase in the current account surplus should still be higher than the sum of FX interventions, so the path of the rouble should be determined by the external environment and capital flows.

Russia’s central bank left its key policy rate unchanged at today’s meeting, in line with nearly uniform market expectations. In its press statement the CBR projected the impact of planned FX interventions on the money market to be close to neutral while warning that the scope for policy rate reduction in H1 2016 has narrowed. The fairly hawkish statement has reduced the likelihood of a rate cut in March. We still see some room for an early resumption of the easing cycle provided oil prices hold steady (supporting the rouble and capital inflows) while inflation falls further.

The rouble is 0.2% stronger at 59.3 against the dollar. OFZ yields are slightly tighter today following yesterday’s rally. Russia’s and Kazakhstan’s longer term sovereign bonds yields are 1-2 bps wider today. Ukraine sovereign yields are broadly flat.

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