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Norvik Research – 17.08.2016

17/08/2016 17:31

Global developments

Hawkish comments from senior Fed officials brought the recent rally to a halt. William Dudley, Fed Vice Chair and New York Fed president, said yesterday that markets were complacent in ruling out a near-term interest rates hike. Atlanta Fed chief, Dennis Lockhart, said that he expects monetary tightening already this year. The dollar index is up 0.2% rebounding from a 2-month low level. 10-year US Treasury yields increased 2 bps to 1.57% yesterday. S&P futures are flat after the benchmark weakened 0.6% yesterday; the Euro Stoxx 600 is down 0.3%. Nikkei 225 rose 1.0% as the yen depreciated 0.5% to 100.8 against the dollar. Chinese CSI 300 fell 0.2%. Bloomberg commodity index is down 0.5%.

Oil prices contracted on negative gasoline inventories data. American Petroleum Institute reported US crude oil stocks declining 1.0mn bbl in the previous week but gasoline stockpiles expanded unexpectedly by 2.2mn bbl. Brent prices declined 1.1% to $48.7/bbl today after rising 1.8% yesterday.

US Fed releases minutes from July 26-27 FOMC meeting today at 18:00 GMT.

Russia and CIS area developments and market colour

Russia’s federal budget deficit improved in July. On our estimates, on a 12-month rolling basis, budget deficit tightened to 3.1% of GDP in July from 3.3% of GDP in June. Total revenue fell from 15.3% of GDP in June to 15.1% of GDP in July, extending the steady decline from 20.3% of GDP in December 2014. Oil revenues contracted to 5.8% of GDP in July from 5.9% in June, non-oil revenues declined from 9.4% of GDP to 9.3% of GDP during the same period. Expenditures declined from 18.6% of GDP in June to 18.2% in July after gradually increasing since February 2016. Overall, budget performance in June-July reflected this year’s spending commitments better than the extremely tight budget execution early in the year. We currently expect full-year deficit to be close to 3.5% on the assumption of average oil prices of $47/bbl (for Brent).

The rouble is 0.5% weaker against the dollar today at 64.1. OFZ yields were unchanged or widened about 1-2 bps yesterday despite higher oil prices. CIS area sovereign Eurobonds are broadly weaker or unchanged today. Russia and Kazakhstan longer term bonds are 1 and 3-6 bps tighter. Ukraine Eurobonds are mostly unchanged while Ukraine 19 is 7 bps tighter. Azerbaijan 24 is flat while Armenia 25 and Belarus 18 are marginally tighter.

MinFin will hold two auctions today. In the first auction MinFin will offer September 2026 fixed-coupon OFZ for RUB 10bn, the second auction will be for RUB 10bn of January 2020 floater.

Corporate news

Phosagro may pay additional dividend. The Board of Directors recommended paying additional intermediate RUB 4.3 bn dividend out of net income for 2015. Increased payout is driven by changes in dividend policy, as Phosagro shifted from a 20-40% net income payout ratio to 30-50%.

The company will present its financial results for the 1H 2016 today.

For more information on the research, please click here.

Norvik Banka Research
+44 207 259 8854
research@norvikuk.com

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