The dollar rose to a 4-month high against the yen, while EM bonds and currencies were back under pressure on Tuesday, amid expectations of higher interest rates in key global economies, Reuters reported. Global growth remained robust, with MSCI's 46-country All World share index rising for a third straight day. Germany's 10-year yield edged up 2bp to 0.56% having more than doubled over the last few weeks. The South African rand, Turkish lira and Russia rouble all dropped around 0.8% as the emerging market sell-off resumed.
Oil erased earlier gains to trade near $44 a barrel in New York as Goldman Sachs Group Inc. warned OPEC that it’s not doing enough to clear a surplus. Futures slid 0.5% after advancing 1.2% earlier. Oil may slip below $40 unless there are sustained inventory declines and a drop in the rig count, according to Goldman Sachs. US crude stockpiles fell by around 2.85 million barrels last week, according to a Bloomberg survey.
Middle East & Turkey
Adnoc, Abu Dhabi’s state-owned oil company, is set to float a stake in its services business and boost foreign investment. Abu Dhabi National Oil Company (Adnoc) said initial public offerings of minority stakes in some services businesses with “attractive investment and growth profiles” would support private-sector growth in the United Arab Emirates, according to the FT. It added that the public would be allowed to invest alongside Adnoc to benefit from future growth.
Growth in the Gulf states, particularly in their banking sectors, has been picking up despite the continually deflated oil prices, CPI Financial reported Tuesday. Non-core income recovery, a strong investment-led credit growth coupled with a soaring population were some of the key aspects helping prop up the budgets of Saudi Arabia, Qatar, and UAE lenders. Capital earnings were also improved significantly mainly as a result of public sector deposits, which in turn improved capital ratios for the lenders, indicated a report compiled by Al Masah Capital Limited, cited by CPI Financial.
Middle Eastern debt issuance reaches US$57.4bn during the first half of 2017, according to data published by Thomson Reuters. Middle Eastern investment banking fees totalled an estimated US$462.1mn n during the first six months of 2017, 15% less than the value of fees recorded during the same period in 2016. Debt capital markets underwriting fees totalled US$136.9mn, up 88 % year-on-year and the highest first half total in the region since records began in 2000.
South Africa's manufacturing output fell 0.8% year-on-year in May, contracting less than expected, after falling by 4.2% in April, Statistics South Africa said on Tuesday, quoted by Reuters. Factory production on a month-on-month basis fell 0.3%, but was up 0.4% in the three months to May compared with the previous three months.
Kenya's shilling weakened on Tuesday to near a six-month low, standing at 104.05/15 to the dollar on Tuesday morning. The drop is mostly due to dollar demand from oil companies, food importers and firms paying dividends to investors abroad, but was cushioned by the Central Bank mopping up liquidity.
Morocco's macroeconomic gauges suggest the country is ready to introduce a flexible exchange rate, but postponing the move should not cause any immediate concerns, according to the IMF statement on Monday. The biggest energy importer in North Africa, has been working with a technical mission from the IMF on liberalising its currency regime after a drop in global oil prices helped strengthen its finances. Recently the Central Bank postponed an announcement on the subject, without providing any reason for the delay. Later the same week Prime Minister Saad Eddine El Othmani said the government needed "further studies" of the liberalisation plan.
CAF, a Latin American development bank, approved US$592mn credit facility to finance development projects in Argentina, Bolivia, Ecuador and Uruguay. This includes infrastructure, water and energy projects in the four selected countries.
Venezuelan state oil giant PDVSA could seek to renegotiate a looming October bond payment given low oil prices, Hector Andrade, PDVSA's managing director for planning, said in an energy conference in Istanbul. "I guess there are a lot of chances of that," Andrade said when asked about a possible payment renegotiation. "Right now, it's not just about the cooperation between producers... (but) cooperation between producer and consumer." The firm also expects to invest US$50bn over the next 7 years to raise capacity by 1 million barrels per day.
Grupo México, a mining conglomerate owner of Mexico’s biggest railway network, got a US$1.55bn loan from BBVA and Credit Suisse as well as US$250mn from Banco Santander to finance the acquisition of Florida East Coast Holdings Corp (FEC). The remainder US$ 350mn was funded with GMXT's own resources and US$97mn in debt at the FEC level.
China’s US$813.5bn sovereign wealth fund posted a 6.22% return on its overseas investments last year, bouncing back strongly from last year’s losses. The return compared with a 2.96% decline in 2015 when commodity prices sank, according to Beijing-based China Investment Corp.’s report. The gain was in line with the “close to” 6% return anticipated in March by Chief Risk Officer Zhao Haiying. Net income, which also includes profit from stakes in China’s biggest banks, rose to US$75.3bn from US$73.bn.
The Philippines reported its biggest trade deficit since data became available on the back of a rapidly expanding economy. The currency dropped to its weakest level since 2006 as the trade gap widened to US$2.8bn in May. According to the statement by the Philippine Statistics Authority, that is the highest since at least January 1980. Exports rose 14% from a year ago to US$5.5bn, while imports jumped 17% to US$8.2bn.
Moody's Investors Service warned that if the merger between Malaysia Building Society Berhad (MBSB) and Asian Finance Berhad (AFB) is successful, competition for deposits among smaller Islamic banks in Malaysia will intensify. The deal will likely lead to the larger of the two financial institutions, MBSB, emerging as the surviving entity. "MBSB's credit profile would be enhanced because the acquisition of AFB and its Islamic banking licence would give MBSB access to cheaper funding and broaden its revenue stream," a Moody's representative said Tuesday. "The entry of MBSB into the current and savings account deposit market would further intensify competition for low-cost deposits among institutions that are not part of big integrated banking groups.” The agency added that while competition among Islamic banks is growing, their profitability remains robust.
NongHyup Bank, a South Korean lender, issued international bonds for US$500mn maturing in 2022 with a 2.875% coupon. Notes were sold at a price of 99.474% with an initial yield of 3.01%. Bank of America Merrill Lynch, Citigroup, Credit Agricole CIB, Nomura International, Societe Generale and UBS managed the transaction.
Rolta India Ltd. is proposing a restructuring plan to its bondholders under which it will swap two defaulted bonds with a new US$500mn five-year bonds as it struggles to repay close to US$1bn of outstanding debt. The Mumbai based firm proposed restructuring the US$300mn notes due in 2019, and US$200mn notes due in 2018, by extending the maturity date and reducing the coupon rate.
Russia, CIS and Europe
Serbia's Central Bank left its key policy rate unchanged at 4%, and said it expects inflation to continue to move within its inflation target tolerance range of 3%, +/- 1.5pp. The National Bank of Serbia (NBS), which last changed its rate in July 2016 when it cut it to the current level, also said inflationary pressures remain low, as reflected by stable core inflation and inflation expectations in the financial and corporate sector.
The founder and key shareholder of Tinkoff Bank Oleg Tinkov, is looking to raise his stake in TCS Group Holding, which owns the bank, by buying global depositary receipts (GDRs) for up to US$30mn, the holding said in a statement on Monday.
As Gazprom began the roadshow of its new CHF-denominated Eurobonds on Monday, 10 July, the Russian gas monopoly warned investors of potential risks. Additional US sanctions against Moscow, currently being mooted in the US Senate and Congress, may delay or altogether end some of Gazprom's upcoming projects, including Nord Stream 2 and Turkish Stream gas pipelines, the prospectus noted. "The risk of the United States imposing sanctions... may result in delays, or otherwise impair or prevent the completion of the projects by the group. The group's export pipeline projects (including Nord Stream 2 and Turkish Stream) and deepwater, Arctic offshore or shale projects that have the potential to produce oil in the Russian Federation or elsewhere in the world may face difficulties."
Russia saw a net capital outflow of US$14.7bn in the first half of 2017, a 71% increase from the same period of 2016, stemming from a combination of factors including a weakening rouble, renewed drop in oil prices and possibility of additional US sanctions on Russian issuers. According to Central Bank data published on Tuesday, net capital outflow in January-June was mostly driven by banking sector transactions related to inflows to resident clients' accounts in early 2017 as well as by foreign debt repayments, the Central Bank said, adding that the country's current account surplus totalled US$23bn in the first six months of the year compared with US$14.9bn in the same period of 2016.
Russia’s Alfa-Bank plans to hold a road show for 4–5 year RUB-denominated Eurobonds on Wednesday, according to Russia’s PRIME agency. Alfa-Bank and Citi will act as the organizers. The Russian lender has already tapped the international markets this year, issuing a 5-year RUB10bn Eurobond in February this year, and a EUR400mn 3-year Eurobond in March (via its holding company ABH Financial Limited).