vk.com/id446425943

Russia

Equities

Gazprom – Romania might become gas exporter – new 20bcm pipeline might be built from Israeli offshore fields to Europe by 2025 – not market moving, of 27 November, by Ekaterina Rodina et al

Week Endnotes

Around the Globe

In focus

Fed’s dovish shift. On Wednesday, Fed Chair Jerome Powell, speaking at The Economic Club of New York, said that interest rates are ‘just below’ neutral. This contrasts with his early October remarks, when he said rates were a ‘long way’ from neutral levels, which a key reason for the October sell-off. Powell also said there was no ‘pre-set policy path’, as it becomes more data-dependent. Against this backdrop, the markets are now downgrading their probability of Fed rate hikes through 2019. While a December hike is still largely expected, the Eurodollar futures market implies just one hike next year compared with the 3x25bp hikes envisaged in the FOMC’s current set of interest rate projections. Meanwhile, US stocks cheered the Fed’s dovish shift, as the S&P 500 posted its biggest one-day gain, +2.3% on Wednesday, since March. Moreover, the Fed Chair’s words regarding the policy path were confirmed by the FOMC minutes published on Thursday.

US-China trade ties in focus ahead of G20. Expectations of reaching a trade truce between the US and China at the G20 summit swung back and forth this week. In an interview with the WSJ, published on Monday, US President Donald Trump said he was likely to move ahead with plans to increase tariffs on USD 200bn of Chinese goods from 10% to 25% in January and slap tariffs on the rest (USD 267bn) of Chinese imports in the absence of a deal with China at the G20 summit. Trump’s top economic advisor Larry Kudlow also weighed in on the topic, saying that the negotiations between the two countries have been moving very slowly. However, he also said that in Trump’s view there was a good possibility of reaching a deal with China. Then on Thursday, Trump hinted that the US was close to doing “something” with China, implying a détente.

Georgia, between Russia and the West. Former foreign minister Salome Zurabishvili became the first woman president in Georgia. In the final second round, Zurabishvili gained 59.5% of votes, while Grigol Vashadze, a leader of opposition coalition dominated by the United National Movement (UNM), got the other 40.5%. Zurabishvili is backed by the ruling Georgian Dream party of Bidzina Ivanishvili, the country’s richest man. He founded Georgian Dream to oust the UNM from power in 2012 elections, prompting the then president Mikheil Saakashvili to flee the country in exile. Both Bidzina and Zurabishvili want to have a balanced relations with the West and Russia. Bidzina has sought to ease tensions with Russia, while seeking EU and NATO membership. Zurabishvili early in her campaign blamed Georgia and Saakashvili for the Russian invasion of 2008. However, she has recently said that given current heightened geopolitical tensions it is not yet the right time to re-establish dialogue with Russia. Nevertheless, she has previously stated that she was in favour of negotiation.

Also in the news

The development of the Black Sea shelf could guarantee energy independence for Romania, and the country might become a gas exporter, according to Vedomosti. Reserves of 250bcm of natural gas were discovered in the Romanian Black Sea in 2012 and a consortium of investors, including ExxonMobil and OMV Petrom, is currently discussing potential investments of EUR 1bn in developing them. At the end of October, the Romanian parliament approved amendments to law that allow investors to decrease taxes by 30% of the investment, the paper reported. Separately, Interfax reported that Israel, Cyprus, Greece and Italy, with the support of the European Union, have reached an agreement on construction of a 20bcm gas pipeline from the East Mediterranean (offshore Israel gas fields) to Europe by 2025. The final agreement is expected to be signed in February next year. The costs of construction might amount to EUR 6bn (USD 6.8bn), the news agency writes.

30 November 2018

6

vk.com/id446425943	Week Endnotes
Russia
Equities

Diamonds Watch – December 2018, of 27 November, by Dmitry Glushakov et al

Morning Miner - 30 November, by Dmitry Glushakov et al

Morning Miner - 28 November, by Dmitry Glushakov et al

Morning Miner - 27 November, by Dmitry Glushakov et al

The weakness in the melee diamonds segment continued in November and culminated in De Beers and Alrosa each cutting their prices -10%. Despite better Indian mid-stream trade data in October and a mid-stream profitability improvement in November after the price cuts, whether the melee segment issues are going to clear up remains open to question, especially given the mixed downstream demand prints in 3Q18.

German carmakers' executives have been invited to White House to discuss trade policies next Tuesday, reports Reuters. The news follows GM's decision to shut several plants in North America as part of restructuring. President Donald Trump stated earlier that new auto import tariffs are being studied, asserting they could prevent job cuts and plant shutdowns. Escalation of trade tensions in cars trade might result in medium-term disruption of sales, we believe, potentially weakening PGM demand. However, we believe that Tuesday’s meeting will provide more clarity on the situation.

Pollution has risen in major Chinese steelmaking hubs, despite winter capacity cuts kick-off, according to SBB, with PM2.5 readings in 32 cities above 200 micrograms per cubic meter (mg/m3). The levels are the highest since Autumn started, with 17 cities seeing one-off readings at above 300mg/m3. This can be partly explained by adverse weather conditions, though we do not rule out that stricter industrial production cuts could be applied in December-March in order to meet the targeted 3% reduction in PM2.5 in November 2018-March 2019 in the Beijing-Tianjin-Hebei region.

Iron ore CFR China dropped 8-9% on Monday comparing to Friday quotes, writes Fastmarkets MB. The decrease was across all iron ore, from 58% to 65% Fe. This falls broadly in line with our view, as we see 62% Fe iron ore decreasing to USD 60/t in 2019F (the current spot is USD 64.3/t), though believe that the low grade ore might add from this level as high-grade ore premium (and thus low-grade discount) narrows.

30 November 2018

7