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Norvik Research 06.12.2016

06/12/2016 19:12

Global developments

Market focus has shifted to possible outcomes of the ECB meeting on 8 December. A near-uniform consensus is that ECB will leave all policy rates and its asset purchases target unchanged, even though some modification of its quantitative easing program beyond March 2017 is possible. Meanwhile, the Eurozone’s growth performance continues to strengthen: GDP in Q3 2016 was up 1.7% YoY SA, higher than the previous reading (and consensus) of 1.6% YoY. US services PMI came out at 54.6 in November against consensus forecast of 54.9 and October’s reading of 54.7. US ISM non-manufacturing composite totaled 57.2 higher than consensus of 55.5. S&P 500 futures are broadly flat after rising 0.6% yesterday. Euro Stoxx 600 is 0.5% higher. EURUSD rose 1.0% yesterday and is 0.2% lower today. 10-year UST yields widened 1 bp yesterday and are flat today. The dollar index is up 0.2% after falling 0.7% yesterday.

Oil prices slipped from a 16-month high as investors are concerned about implementation of the deal. Crude oil inventories are projected to have declined 1.5 mn bbl in the previous week. Brent prices are 2.1% down today at $53.8 per bbl after rising 0.9% yesterday.

Russia and CIS area developments and market colour

The CBR may get a new tool to protect the rouble from sharp fluctuations. The new instrument (a so called “discrete auction”) was developed exclusively for the USDRUB pair by MOEX in order to avoid suspension of trading if the rouble’s FX rate moves more than 20% in 10 minutes. This special auction would last for 15 minutes (10 minutes for collecting bids and offers, 5 min for the CBR’s own moves, if any, and for determination of the auction’s outcome). The accepted bids and offers are filled at a uniform price defined as a weighted average of collected bids and offers. This mechanism would preclude a situation similar to that in mid-December 2014 when RUB fell some 35% amid market panic.

The rouble is flat at 63.8 against the dollar. OFZ yields are 3-8bps lower. Russia and Kazakhstan longer-term sovereign Eurobond yields are 1-2 bps tighter. Ukraine sovereign bonds are 3-7 bps tighter.

Corporate news

Rosneft placed 10-year bonds for RUB 600bn yesterday with a 10.1% coupon. The transaction closed very quickly, a sign of off-market nature of the transaction. The exact purpose of the deal remains unclear (yesterday’s deadline for privatization of the company’s 19.5% stake passed without a Rosneft board approval of any buyback decision).

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