News
RO: Neg – MinFin rejects all bids at a RON400mn auction of 6M T-Bills (p2)
RU: Negative – FinMin Kudrin resigns amid clash with Medvedev (p1)
TK: Positive – September real sector confidence index records a strong 2.4% mom increase (p2)
Today’s Events
BG: July Gross external debt / CR: EUR 20mn and HRK 150mn t-bill auctions HU: 3m t/bill auction, HUF30bn on offer / KZ: KZT 10bn 11Y fixed rate GB auction / RU: 2Q C/A / SRB: RSD 4.9bn 24M t-bill auction
EEMEA Markets
* Global backdrop: Expectations regarding an accelerated approval process of the EFSF scheme and speculations about an increased size has fuelled consolidations of risky assets. US and Asian equity markets closed 2% higher whilst EUR/USD also stabilizing around the 1.35 levels. Meanwhile credit spreads also improved somewhat vs. last week with SnrFin 5y tightening by about 15bp compared to the Friday close. The improving sentiment might boost trading in CEEMEA markets where several markets were badly hit last week. We believe the focus today will remain on Russia where the banking sector liquidity squeeze and the resignation of FinMin Kudrin has pushed short end rates about 100bp higher yesterday.
* Russia: RUB CCS rates jumped more than 100bp yesterday amid ongoing fears around the banking sector liquidity and speculations about the resignation of FinMin Kudrin. His resignation has been confirmed last night but given his closer relationship with PM Puttin we do not rule out that he will return to another top economic post (CBR Governor or economic advisor). Meanwhile the CBR continues to pump liquidity to the banking sector (yesterday more than RUB170bn) but we believe the key problem is that this liquidity is very short term (only 1day). Similar to 2008 we believe the main reason why the CBR is not providing longer term liquidity that it fears that it could fuel further RUB depreciation. Till the CBR does not shift its stance in terms longer liquidity operations rates and FX will move hand in hand. The RUB basked has breached the previous corridor at 37.45 and is trading about 10kopecks lower this morning. In terms of strategy one of our top trades for Q4 2011 was to pay 2y RUB CCS. We initiated this trade at 6% last Tuesday and the rates are now around 8%. Given the capital flow backdrop is much more supportive vs. 2008 (less capital moved in during the last 2 years and hence less might leave) we are looking to take profit. Today we recommend taking 200bp profit on half of our 2y RUB CCS payer recommendation whilst we keep the other half of the positions for potential spikes.
* Hungary & Serbia t-bill auctions: today Hungary will offer only HUF30bn 3m t-bill whilst Serbia will auctions only RSD5bn 24m t-bill. As both auctions are running with small size we do not see any problem with issuing the full offered amount. In Hungary we note that the carry on an FX hedged 3M t-bill position is only around 160bp vs. 225bp a couple of weeks ago. We however expect further deterioration of the carry given basis will likely continue move to the right.
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Gyula Toth
UniCredit Research