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Norvik Research 26.01.2017

26/01/2017 19:30

Global developments

The sharp rally in US stocks slowed down today while the dollar index rose sharply. S&P 500 is flat after the index rose 0.8% yesterday, while EuroStoxx 600 pared early gains. Nikkei 225 is up 1.8% with the yen falling 1.2% against the dollar, China’s CSI 300 is 0.4% higher. Yields on 10-year UST are up 3 bps at 2.54% today after rising 5 bps yesterday. The dollar index is up 0.8%, more than offsetting yesterday’s losses. Copper prices are down 0.4% after rising 2.5% yesterday to the highest level since mid-2015.

Oil prices are 2.3% higher at $56.4/bbl (Brent) as expectations of supply cuts outweigh US stock increases. Crude oil inventories increased 2.9mn bbl last week, broadly in line with API’s preliminary estimates.

Russia and CIS area developments and market colour

Russia’s Finance Ministry announced last night that it will start buying FX into reserves from February via the CBR, based on its estimates for oil revenue windfall (compared to $40/bbl benchmark, for Urals). Daily intervention volumes (due to be determined by the 3rd working day of each month) will stay unchanged for the rest of that month. This mechanism removes any discretion for the CBR in determining the size of these interventions. Based on MinFin’s latest estimates for windfall revenue at oil prices of $50-55/bbl, daily FX interventions would not exceed $100mn per day. Impact of a constant modest bid for FX is unlikely to be significant, in our view, but the news led to a 1.4% drop in the rouble today, to 60.4 per USD.

Russia’s consumer demand indicators for December were weak. Real retail sales fell 5.9% YoY versus -4.1% YoY in November (consensus: -3.7% YoY). In seasonally-adjusted terms, on our estimates, retail sales declined 0.7% MoM after -0.1% MoM in November. Real wages rose 2.4% YoY after 2.1% YoY in November (revised from a 1.7% YoY increase); consensus: +1.5% YoY. Real disposable income fell 6.1% YoY after November’s -5.6% MoM. Unlike output, the latest demand-side data point to weaker growth. Russian inflation stayed at 0.1% WoW to 24 January, declining to 5.2% YoY.

OFZs continued to sell off, with yields up to 15 bps higher, following a similar move yesterday. Russia’s and Kazakhstan’s Eurobond yields are 3-4 bps up, Armenia-25 and Belarus-18 are 10 bps and 3 bps wider respectively.

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