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Norvik Research 15.09.2016

15/09/2016 16:04

Global developments

Stock markets are higher ahead of today’s publication of important data. US retail sales and PPI data, alongside the Empire Manufacturing index are due at 12.30 GMT. Euro Stoxx 600 is up 0.1%. S&P futures are 0.4 higher after the index closed 0.1% lower yesterday. MSCI Asia Pacific index fell 0.3%. The dollar index is up 0.1%. The US 10y yields are lower 1bp to 1.68% today. The Bloomberg commodity index is 0.2% higher.

Bank of England held the key rate at 0.25% at today’s meeting but signaled room for another cut by year-end. UK data are resilient: retail sales increased 6.2% YoY in August versus the 5.4% forecast, following positive PMI and industrial production data earlier this month. GBPUSD stayed at 1.323.

Oil prices fell on expectations of higher output from key OPEC producers. Libya and Nigeria have reportedly restored their output affected by domestic conflicts, adding more than 0.8 mn bbl/day and further increasing supply surplus. The EIA data show oil inventories down 0.6 mn bbl against a 1.1 mn increase from the API. Brent prices fell 2.7% yesterday and are up 0.8% today at $46.2/bbl.

Russia and CIS area developments and market colour

Weekly inflation in Russia stayed at zero in the week to 12 September, unchanged from the previous week. On our estimates, headline inflation declined to 6.6% YoY from 6.7% YoY in the previous week. We expect the CBR to deliver a 50 bps cut in its key rate tomorrow, in view of the favourable developments on inflation and inflation expectations, and the relatively stable rouble’s exchange rate.

Yesterday the IMF Board approved a SDR 716mn ($1.0 bn) disbursement to Ukraine. This year’s first disbursement will go directly to FX reserves of the NBU (gross reserves totaled $14.1bn at end-August). The decision unlocks a $1bn loan guarantee from the US (expected later this month) and possibly a EUR 600mn loan from the EU (conditional on further legislative work regarding energy sector reforms). Government officials have expressed hope that a further $1.3bn from the IMF could be secured by year-end. The IMF statement cited the need for further progress in fiscal reforms (including pension reform), strengthening of local banking system through recapitalization, unwinding of related-party lending, and resolution of impaired assets, restructuring and divestiture of state-owned enterprises, and prosecuting high-level corruption cases. The IMF decision has boosted local FX market sentiment, with UAHUSD rising 2% vs USD since early September.

The rouble strengthened 0.1% today at 65.1 against the dollar. OFZ yields are 1-6 bp wider today. Russia and Kazakhstan longer term yields widened 1-2 bp. Ukraine sovereign yields are 3-7 bps tighter with Ukraine 19 yield tightening 8 bp to 7.69%.

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