Investment Research General Market Conditions
06 March 2014
EMEA Weekly Bank Rossii runs into the same trap Rouble falls to record low On the morning of Monday 3 March 2014, the Russian rouble opened significantly down against RUBBASK (-2.8%), USD (-2.2%) and EUR (-2.0%) on market expectations that Russian troops would move into Ukraine and that western nations could impose economic sanctions on Russia. In response, the central bank unexpectedly raised rates by 150bp. On the same day from 11:00 Moscow time, the new key rate became 7.00, the one-day repo became 8.00 and the one-day depo increased to 6.00. The last time the depo rate was changed was December 2012 (up 25bp to 4.50), while the old key rate (refi rate) was last changed in September 2012. This time the old refi rate is unchanged. However, since autumn 2013, the key rate has been changed to a one-week open market operations rate. In addition, on Monday 3 March, Bank Rossii implemented another tool to stop the RUB’s fall. The central bank intervened severely in the FX market, selling more than USD11bn of FX. Such a significant intervention was seen years ago in autumn 2008, when over several months Bank Rossii sold more than USD200bn, absorbing RUB liquidity and killing credit, as rates increased to double digits. At that time, Bank Rossii did not succeed in supporting the RUB for long, letting it devalue 45% against the USD. Again, this time Bank Rossii was not a significant game changer in the RUB FX rate. The more positive effect came on Tuesday 4 March, when Russian president Vladimir Putin calmed the markets with his press conference announcing that Russia would send troops into Ukraine only in an extreme case, leading markets to hope that the geopolitical crisis may soon be over.
Contents Calendar ............................................................... 3 EMEA FX scorecard overview ................ 4 Currency forecasts, EMEA ....................... 5
Russian rouble falls to record low
Source: Macrobond
UAH is still under big pressure
Following the hike in the key rate, market rates increased significantly and three-month Mosprime rose 144bp. Fortunately, Bank Rossii and Russia’s Finance Ministry continue to provide RUB liquidity, calming rates a bit. Three-month Mosprime withdrew 19bp but speculation about new hikes has appeared. In its statement, Bank Rossii says that it has decided to raise the key rate temporarily to prevent inflation risks and risks for financial stability that are linked to recently increased volatility in the financial markets. The next meeting of the board of directors of Bank Rossii on monetary policy is due to be held on 14 March 2014.
Source: Macrobond
We see Bank Rossii’s move as a negative event for Russian economic growth in 2014 and Russian stocks. Furthermore, if held for a long period, it is likely to dent Russian growth, leaving it clearly below 2% y/y in 2014. Given the downside risks for fixed investment growth and potential economic sanctions by western nations on Russia, this monetary tightening could even send Russia into recession in 2014. However, we do not exclude the possibility that Bank Rossii could return to lower rates very soon – even on 14 March 2014 – depending on how geopolitical risks move rouble markets over the next 10 days.
Economist Vladimir Miklashevsky +358 10 546 7522
[email protected]
Important disclosures and certifications are contained from page 7 of this report.
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Ukraine urgently needs new financial aid Ukraine’s macro situation is deteriorating fast. In January 2013, Russia held the second tranche of the USD15bn eurobond loan to Ukraine agreed in December 2013 as the Russian president Vladimir Putin proposed waiting ‘for the new Ukrainian government to be formed’. Russian energy giant Gazprom plans to cancel the USD7bn gas discount in April 2014, as Ukraine misses paying back on time the amount owed. Gazprom says that Ukraine’s debt to the corporation has increased to almost USD2bn. Ukraine’s sovereign outstanding debt in 2014 is around USD6.2bn, of which USD733m is due to be paid before May 2014. The country’s finance ministry estimates 2014 debt payments will rise to USD10bn. In 2015, around USD9bn of sovereigns are due to be paid. As Ukraine has to pay almost USD200m next week, the country is negotiating on new funding with several counterparties. In talks in Kiev, US Secretary of State John Kerry assured that the USA is preparing USD1bn in loan guarantees and the EU has promised to provide EUR610m ‘in weeks’, saying the ‘EU package could total EUR11bn’. Despite these promises of large aid, there are no concrete statements on timing, duration or conditions. Another hope is the IMF, which could provide substantial aid and seems to be the only realistic option at the moment. The current situation is worsening from day to day, as Ukraine’s Finance Ministry has declared that the country may ask for a debt restructuring. On the news, Ukraine’s eurobond yields at the short-end shot to more than 25%. We see the situation remaining extremely worrying before new elections are held as geopolitical risk remains very high.
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Calendar EMEA Data and Events in Week 11 Monday, March 10, 2014 CZK
9:00 Unemployment rate
TRY
9:00 Industrial production
CZK
9:00 CPI
CZK
9:00 Wages
CZK
9:00 Trade balance
%
Period
Danske Bank
Consensus
Previous
Feb
8.7%
8.6%
8.6%
y/y
Jan
2.9%
7.1%
m/m|y/y
Feb
0.1%|0.2%
0.1%|0.2%
y/y
4th quarter
-1.5%
0.1%
CZK bn.
Jan
34.6
9.6
Consensus
Previous
Tuesday, March 11, 2014
Period
Danske Bank 2.7%
HUF
9:00 GDP (final)
y/y
4th quarter
HUF
9:00 CPI
y/y
Feb
0.0%
RON
9:00 CPI
y/y
Feb
1.1%
RON
9:00 Industrial production
y/y
Jan
7.9%
Wednesday, March 12, 2014 TRY
9:00 Current account
ZAR
9:00 Current account as a % GDP
Period
USD bn.
Jan
Consensus
Previous
-5.25
-8.32
4th quarter
-6.8% -232.7
ZAR
9:00 Current account balance
USD bn.
4th quarter
HUF
9:00 Trade balance
m. EUR
Jan
RUB
13:00 CPI weekly YTD
y/y
Mar
Friday, March 14, 2014
Danske Bank
Period
1.4% Danske Bank
Consensus
Previous
CZK
9:00 Industrial production
y/y
Jan
6.6%
9.3%
CZK
9:00 Retail sales
y/y
Jan
2.6%
5.2%
CZK
9:00 Construction
y/y
Jan
CZK m.
4th quarter
-310
Feb
0.5%
CZK
10:00 Current account
RUB
10:30 One-Week Auction Rate
%
PLN
14:00 CPI
y/y
1.4% -1127 7.0%
7.0%
0.8%
0.7%
Note: The editors do not guarantee the accuracy of the figures, hours or dates stated above All release times are CET Source: Danske Bank Markets
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EMEA FX scorecard overview Score PLN
Score HUF
EMEA FX scorecard outline
5.0
-5.0 Total
Source: Danske Bank Markets calculations
Score CZK
Score TRY
5.0
5.0
2.5
2.5
0.0
0.0
Valuation
Macro
Total
Valuation
Global
Global
-2.5 -5.0
Carry
Macro
Technical
-5.0
Source: Danske Bank Markets calculations
Source: Danske Bank Markets calculations
Score ZAR
Score RON
2.5
0.1
Source: Danske Bank Markets calculations
Score ILS
Score total 5.0 2.5
Source: Danske Bank Markets calculations
06 March 2014
in local three-month rates, carryto-risk, spread versus EUR or USD three-month rates and spread versus peers. score based on leading global indicators, a liquidity score based on G3 real rates and a sentiment score based on performance in global equity markets and traditional funding currencies. currencies are over/undervalued compared with the long-term trend in the real effective exchange rate (REER). The trend is adjusted for external imbalances, i.e. an imbalance-adjusted REER. The scores are calibrated to reflect the short-term impact of the valuation on FX.
Total
Valuation
Global
0.4
Macro
Total
-5.0 Valuation
-5.0
Global
-2.5 Carry
-2.5 Technical
0.0
Macro
0.0
Carry
0.3
Technical
2.5
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Total
Valuation
Global
Source: Danske Bank Markets calculations
5.0
momentum in different volatility measures, short- and longer term moving averages and the level of the relative strength index.
Valuation: calculates whether
Macro
Total
Valuation
-5.0 Com
-5.0
Global
-2.5 Carry
-2.5 Technical
0.0
Macro
0.0
Carry
2.5
Technical
1.2
momentum in different monthly macro indicators.
Global: consists of a global growth
5.0
5.0
Macro: calculates the growth
Carry: calculates the momentum
Carry
-2.5
0.9
Technical
-0.1
scale from +5 to -5. A score is then derived by combining the different sub-scores.
Technical: calculates the
Total
Global
Carry
Source: Danske Bank Markets calculations
Total
-5.0
-0.2
Valuation
-2.5 Macro
-2.5 Valuation
0.0
Technical
0.0
Macro
All scores are computed on a
2.5
Global
0.3
Carry
2.5
Technical
5.0
Source: Danske Bank Markets calculations
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Currency forecasts, EMEA Currency forecasts, EMEA
Source: Bloomberg, Danske Bank Markets
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Emerging markets contacts Emerging Markets Research Lars Christensen
+45 45 12 85 30
Flemming Jegbjærg Nielsen
+45 45 12 85 35
[email protected] [email protected]
Stanislava Pravdová-Nielsen +45 45 12 80 71
[email protected]
Narayani Sritharan
+45 45 12 85 48
[email protected]
Vladimir Miklashevsky
+358 10 546 7522
[email protected]
Global Retail SME, FX Stig Hansen
+45 45 14 60 86
[email protected]
Flemming Winther
+45 45 14 68 24
[email protected]
Trading FX, Fixed Income, Danske Bank Markets Frank Sandbæk Vig
+45 45 14 67 96
[email protected]
Thomas Manthorpe
+45 45 14 69 68
[email protected]
Markku Anttila
+358 10 513 8705
[email protected]
Perttu Tuomi
+358 10 513 8738
[email protected]
Danske Bank Poland, Warsaw Maciej Semeniuk
+48 22 33 77 114
[email protected]
Bartłomiej Dzieniecki
+48 22 33 77 112
[email protected]
Danske Bank Markets Baltics Howard Wilkinson
+358 50 374 559
[email protected]
Martins Strazds
+371 6707 2245
[email protected]
Giedre Geciauskiene
+370 5215 6180
[email protected]
Rainer Änilane
+372 675 2471
[email protected]
ZAO Danske Bank, St. Petersburg Treasury Department Maria Lenina Rautonen
+7 921 797 57 80
[email protected]
Vladimir Biserov
+7 812 332 73 04
[email protected]
Irina Voronova
+7 812 332 73 04
[email protected]
All EM research is available on Bloomberg DMEM
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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The author of this research report is Vladimir Miklashevsky, Economist. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’ rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors on request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Expected updates This publication is updated on a weekly basis. Date of first publication See the front page of this research report for the date of first publication.
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