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Norvik Research 03.11.2016

03/11/2016 17:58

Global developments

Yesterday’s FOMC statement has not altered market perception of a high likelihood of a rate hike in December, barring major dislocations. The market-implied probability of a December hike currently stands at 78%. The dollar index is down 0.1% today, weakening for the 4th consecutive day. 10-year US treasury yields are up 1bp at 1.82%.

China’s PMI Services came out at 52.4 yesterday, compared to 52.0 in September. CSI is 1.0% higher, while Nikkei 225 is down 1.8%, S&P futures are flat after the benchmark index declined 0.7% yesterday, Euro Stoxx 600 is 0.5% higher after falling 1.1% yesterday.

The pound sterling is 1.1% higher on the day after a High Court ruling in London that the UK government cannot trigger Article 50 without prior approval by parliament. The government has stated its intention to appeal the ruling at the Supreme Court (with a final decision expected in December) but the likelihood of a “hard” Brexit has clearly declined.

Oil prices fell yesterday on an extremely sharp increase in US inventories. The Energy Information Administration reported that crude oil inventories increased 14.4 mn bbl in the previous week, the highest such increase since March. Brent prices were down 2.7% yesterday and are 0.4% higher today at $47.0/bbl.

Russia and CIS area developments and market colour

Russia’s Economy Minister Ulyukaev has complained in comments to Reuters that the government’s focus on inflation and fiscal deficit is hampering structural reform and economic growth. Ulyukaev had in the past been in charge of implementing tight fiscal and anti-inflationary policies in his earlier roles. His comments therefore likely reflect the Kremlin’s frustration with low economic growth rather than an imminent shift in policy priorities, in our view.

The central bank of Ukraine has allowed subsidiaries of Russian banks included into Western sanctions lists to carry out transactions aimed at recapitalization of such entities. This decision does not mean that all such banks (including a local VTB subsidiary, BM Bank) will necessarily be recapitalized but it at least removes a technical obstacle to this process.

The rouble is 0.2% weaker at 63.7 against the dollar. OFZ yields are 1-4 bps tighter today. Russia and Kazakhstan longer-term sovereigns are 1 bp tighter and 3 bps wider respectively. Ukraine sovereign yields are 5-12 bps tighter.

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