SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 5 December 2016ContactsIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li 212-553-1404Senior Research Analyst xian.li@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.Sovereign Risk ReportOPEC Deal Pumps Up Outlook Global market-based measures of credit risk generally declined this past week, as investors cheered a stream of positive economic data and OPECs long-sought deal to reduce worldwide oil production. Under the deal, the cartel of 13 major oil exporters is expected to pare its current output of 33.7 million barrels of oil per day to 32.5 billion barrels. Oil prices reacted by surging from $45.96 per barrel to $51.68 over the past week. This increase has helped ease indicators of sovereign credit risk for major oil exporters. Over the past week the five-year Sovereign EDFTM (Expected Default Frequency) metrics1 fell for Saudi Arabia, Qatar, Iraq, Russia, Colombia, Venezuela and Mexico. Saudi Arabias Sovereign EDF, for example, declined from 0.34% to 0.32%; Venezuelas fell from 20.4% to 16.8% (Exhibit 1). The behavior of these probability of default measures indicates that market participants are sanguine about the deals implementation.Purchasing Managers Indices (PMI) from around the globe, a measure of activity in the manufacturing and service sectors, contributed to the overall easing in credit risk concerns. A report released last week showed that Chinas PMI index rose more than expected, to 51.7 in November from 51.2 in October, driven by the government infrastructure stimulus plan and increasing construction activity. As shown in Exhibit 1 below, Chinas five-year Sovereign EDF measure declined from 0.34% to 0.33% as of December 2. On the other hand, British manufacturing survey levels numbers unexpectedly fell to 53.4 from 54.2 in October, as the sterling sl...
