The economic calendar looks relatively light today (before China GDP, retail and industrial output tomorrow) meaning that traders and markets have been focusing on the weekend’s Western sorties in Syria and a number of other geopolitical pressures. The solemn worsening situation in Syria and its multi-faceted and far-reaching aftermath include: US’s further sanctioning (expected later today) on Russian companies tied to the production of chemical weapons; the discord within UK parliament on whether Theresa May’s prerogative to join US and France airstrikes goes against the spirit of the parliamentary process (including 15 years of convention) and undermines UN Security Council procedures; it hampers the likelihood of success for the forthcoming summit between North and South Korea and the potential meeting of Kim Jong Un and President Trump; puts pressure on Brent oil prices to remain around the current ~$70 range; it emphasises the urgency for the Organisation for the Prohibition of Chemical Weapons (OPCW) to be allowed to investigate the locations of suspected chemicals attacks; it opens further possibilities for Iran and Israel to deepen their conflict in the Syria region; and it still does little to support the people of Syria in the near-term (who are themselves split, with large protests over the airstrikes gathering in Damascus).
On October 16, Fitch Ratings affirmed their BBB- rating for Russia but maintained a negative outlook. While lower oil prices have been a negative factor and the economy has fallen into recession, the current account is expected to increase the surplus to 5-6% of GDP in 2015 compared to 3% in 2014. Fitch’s revised forecasts, which factor in a lower oil price, look for the “economy to stabilise, growing by up to 0.5% in 2016, and rising to 1.5% in 2017”, although a federal fiscal deficit of 2.8% is forecast for 2015. For Fitch “the sovereign balance sheet remains a key support to creditworthiness. Government debt is on course to end 2015 at 13% of GDP and sovereign net foreign assets are estimated at 26% of 2015 GDP.” Given that Russian bonds have been among the best performers this year, Fitch looks to have made a savvy call by maintaining its investment grade rating on the Russian sovereign when its peers cut their ratings earlier in the year.