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Norvik Research 15.05.2017

15/05/2017 15:59

Global developments

Rising commodities prices offered some relief for the markets amid Trumps’ struggles to implement his infrastructure program and tightening monetary policy in China. Bloomberg commodity index rose 0.7% today led by oil, iron ore gained 0.2%, gold is up 0.5%. Global stocks markets are mixed. Chinese CSI 300 is 0.4% higher while Nikkei 225 is 0.1% down. S&P 500 futures are marginally higher while Eurostoxx 600 is slightly down. The dollar index is 0.4% lower. US 10Y Treasury yields are 1 bps higher at 2.33%.

Oil prices rallied after Russian and the Saudi Arabian energy ministers said that they support an extension of a production cut for 9 months (against expectations of 6 months). The number of active rotary rigs in the US increased by 9 to 712 in the previous week. Brent prices are up 1.6% today at $52.4/bbl after rising 3.5% in the previous week.

Russia and CIS area developments and market colour

CBR’s analysts warned about the risks of the weaker rouble. According to their research, the weaker rouble could lead to technological inferiority and low human wellbeing. Appreciating currencies are beneficial for capital intensive industries and are typical for catching-up development countries. Depreciating currencies would mostly benefit labour-intensive industries and will lead to inefficiencies and structural problems after reaching a certain point of industrialisation (as it has happened in China).

Corporate news

International bank of Azerbaijan (IBA), country’s largest bank, filed for bankruptcy in New York to restructure the debt burden, which reaches $3.3 billion. Despite capital injections from the government, the bank’s solvency was threatened due to a decline in oil prices and the eventual depreciation of domestic currency.

A certain portion of Eurobonds will be converted into sovereign debt of Azerbaijan, and the restructuring plan will be binding with the approval of creditors, who hold two thirds of IBA’s bonds. On May 10, IBA missed a principal and coupon payments of $100 million. As was stated by the bank, the government has already bought 9.93 billion manats ($5.8 billion) worth of toxic assets.

As news of a planned restructuring became public, yields of IBA’s Eurobond maturing in 2019 spiked from 5.19% to 14.1% in a day. During the coming days, the situation has stabilized and currently IBA trades at 10.5% YTM.

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