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Norvik Research 19.01.2017

19/01/2017 19:27

Global developments

Government bond yields rose sharply in the wake of yesterday’s hawkish comments by Fed Chair Yellen and ahead of today’s ECB announcements. In her speech last night, Yellen warned that a prolonged delay with raising US rates may bring a “nasty surprise”, either for inflation or financial stability. The US 10-year yields jumped 10 bps to 2.42% yesterday and rose to 2.44% today. Market-implied probability of an interest rate increase by 15 March rose to 34.6%, from 29.6% yesterday. 10-year Bund rates rose 3bps at the start of trading today, only to give up most of this increase during President Draghi’s press-conference. The dollar index is marginally higher today, following yesterday’s 0.9% increase. The euro corrected sharply weaker against the dollar after Draghi’s remarks, offsetting its gains earlier today. Gold price fell 1% yesterday and 0.4% today.

Stock markets are mixed today after yesterday’s modest gains. S&P futures are slightly lower after the index rose 0.2% yesterday; EuroStoxx 600 is 0.1% higher today. Nikkei 225 is up 0.9%, CSI 300 is 0.3% lower.

Oil prices are higher ahead of the EIA data on US inventories. Yesterday’s API data included a 5.0 mn bbl drop in crude stocks and a large (9.75 mn bbl) build-up in gasoline and distillates. Brent is 0.7% higher at $54.4/bbl after falling 1% yesterday.

Russia and CIS area developments and market colour

The rouble is 0.2% weaker against the dollar at 59.6, having pared an earlier 1.5% drop prompted by an indication from first deputy PM Shuvalov that the CBR is planning FX interventions to smooth out RUB volatility. Shuvalov confirmed an earlier MinFin statement that windfall oil revenues will not be spent this year and instead used to substitute financing from the two sovereign funds. The CBR last night welcomed this comment while stating that the higher certainty about fiscal policy conduct would allow it to consider easing monetary policy and commence FX interventions.

Short-term OFZ yield declined by 4-5bps today, so the whole curve now looks almost flat. Russia’s sovereign Eurobond yields rose 3-4 bps following the market-wide correction after Yellen’s comments, Azerbaijan-24 and Armenia-25 yields are 8bps wider.

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