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Norvik Research 15.12.2016

15/12/2016 19:02

Global developments

The outcome of last night’s FOMC meeting was more hawkish than expected by the market, pushing the dollar and US treasury yields higher. FOMC members unanimously voted to raise interest rates by 25 bps, in line with uniform market expectations, but projected three more hikes next year rather than the two moves anticipated earlier. Median forecast for longer-term rates has moved to 3.00% from 2.75% previously. The US dollar was the main beneficiary: the DXY index added 0.7% yesterday and is 0.8% higher today, at the highest level since 2002. EURUSD declined to 1.049. 10-year US Treasury yields increased 10 bps yesterday and are 6 bps higher today at 2.63%. The US stocks also reacted negatively to the FOMC outcome. S&P 500 futures are flat today after the index declined 0.8% yesterday. Euro Stoxx 600 fell 0.5% yesterday and is slightly higher today, Nikkei 225 is marginally higher, while CSI 300 is 1.1% lower. Gold fell 1.3% yesterday and is down a further 0.3% today.

Oil prices fell yesterday against the backdrop of a stronger dollar. Crude oil inventories declined 2.6 mn bbl in the previous week against the API estimate for a 4.7 mn bbl build-up. Brent price fell 3.3% yesterday and is 1.0% higher today at $54.4/bbl.

Russia and CIS area developments and market colour

Russia’s federal budget deficit widened marginally in November. On our estimates, on a 12-month rolling basis, budget deficit rose slightly to about 3.5% of GDP, from 3.4% of GDP in October. Total revenue increased from 14.6% of GDP in October to 14.7% of GDP in November due to higher hydrocarbon revenues, reversing the steady decline from 20.3% of GDP in December 2014. Energy revenues increased to 5.5% of GDP in November from 5.4% in October, non-energy revenues were unchanged at 9.2% of GDP over the same period. Expenditure rose to 18.2% in November from 17.9% in October 2016. MinFin’s latest projections call for deficit to widen to 3.9% of GDP in December (if privatization receipts are treated as revenue rather than financing).

The rouble is 1% stronger today at 61.6 against the dollar. OFZ yields are 1-6 bps wider today. Russia and Kazakhstan longer-term sovereign Eurobond yields are 7-11 bps wider in line with US Treasuries yields dynamics. Azerbaijan-24 and Belarus-18 are 7 and 8 bps higher respectively, while Ukraine sovereign bonds are 5-9 bps wider.

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