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Norvik Research 06.09.2016

06/09/2016 16:59

Global developments

Risk appetite persists ahead of ECB’s meeting on Thursday. S&P futures are rising 0.1%. Euro Stoxx 600 is up 0.1% today, to the highest level since January. The dollar index is 0.2% weaker today. Yields on 10-year US Treasuries rose 1 bps to 1.61%. Nikkei 225 is up 0.3%, China’s CSI 300 rose 0.7%, FTSE 100 is down 0.2% as GBP appreciated a further 0.2%.

Oil prices continued to slide following yesterday’s disappointment with the lack of details on the Russian-Saudi cooperation. Brent prices are down 0.6% today at $47.3/bbl, following yesterday’s 1.7% increase.

Russia and CIS area developments and market colour

Russia’s inflation in August declined to 6.9% YoY, from 7.2% in July, in line with weekly data and market expectations. Official core inflation fell to 7.0% YoY from 7.4% in July. Food price inflation was unchanged at 6.5% YoY while non-food goods inflation fell to 8.1% from 8.4%. The drop in headline inflation has widened its gap with the key rate (10.5%) to above 350 bps. With falling inflation and inflation expectations, and a broadly stable exchange rate, we see a strong case for a policy rate cut at the 16 September meeting.

The Reserve Fund reported a RUB 390bn drawdown for budget financing purposes in August. Similar monthly drawdowns occurred in March-May 2016. The stock of Reserve Fund totaled $32.2bn as of end-August.

Russia’s Ministry of Finance is seeking to extend the 50% dividend requirement for state-controlled companies. According to a draft decree prepared by Minfin, state companies should direct 50% of their net income according to IFRS to dividends in future (initially this requirement was introduced for 2016 as a temporary measure). The ministry estimated additional revenue for the budget at RUB 200-250 bn per year in 2017-2019. If implemented, the move would help reduce fiscal pressures (and support OFZ prices) while being credit- negative the largest oil and gas companies, including Gazprom and Rosneft, as these companies will have to increase borrowings to finance capex programs.

A date for the IMF Board meeting for Ukraine has been set, according to comments by Finance Minister Daniluyk. However, the official refrained from providing further details. Earlier an IMF spokesman said that Ukraine’s program may be reviewed in the second half of September. Confirmation of the next tranche would unlock further official assistance and should support the hrivnya (UAH depreciated by 8% against USD since early August).

The rouble is 0.2% stronger today at 64.8 against the dollar after a 0.3% move yesterday. OFZ yields tightened 1-2 bp yesterday in inactive trading.

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