Russian Markets Research July 16-22, 2007
Oil prices are trying to climb through psychological maximums!
Latest economic data showed a solid growth of the Russian economy. State experts hope that inflation will not rise above the planned 8% in 2007, but they are becoming increasingly pessimistic, predicting inflation to exceed last year’s level of 9%.
The liquidity decreased and overnight rate increased on the money market last week compared to the previous week. Overnight rate closed the week at 4.11%.
US Treasuries market was again in focus for the whole last week. The yield of UST10 fell by 16bps from 5.11% to 4.95% last week. Thus the psychological level of 5.00% was broken down. On Friday it closed at 4.95%.
The U.S. currency is under pressure. There is little reason for the Euro to stop climbing. EUR/USD posted new record high at 1.3842 on Friday last week.
FLAT is the best word describing situation on the Russian Stock Market last week. Nothing special. RTS made several attempts to advance further but unsuccessfully and closed the week near all time high still looking upwards. Totally RTS rose by 0.41%, MICEX stayed almost flat.
At the beginning of the week DOW continued to rise and it tested a psychological level of 14,000 and reached maximum at 14,020 on Tuesday, thus beating expectations of all analysts. TICS data showed that the financial liquidity is rising and there is still interest from foreign investors to buy U.S. assets.
Last week oil prices advanced again. Brent, Urals, and WTI rose by 1.21%, 0.62% and 2.22% and closed the week at $80.13, $76.49, and $75.53 respectively. Stock prices of Russian oil companies have been rising for four consecutive weeks. Last week they rose by 0.81% but from the beginning of the year they still fell by 0.74%.
WORLD INDICES
Last week world main market indices showed negative performance. Losers of the week were European DAX (-2.69%), CAC40 (-2.63%), FTSE100 (-1.96%).
Global liquidity is rising!
Russian Economic Update
Officials become increasingly pessimistic on Russia’s inflation in 2007
Prices are rising faster than the government would like them to. Consumer prices increased by 0.3% from July 1 to 10. Officials expect July’s inflation to be 0.7%, the same as last year. State experts hope that inflation will not rise above the planned 8% in 2007, but they are becoming increasingly pessimistic, predicting inflation to exceed last year’s level of 9%. Inflation accelerated in April, and in June it jumped to 1%, against a mere 0.3% one year ago. Since the beginning of the year, prices have been rising amidst huge money supply growth. In the spring, an increase in fruit and vegetable prices also added to inflation.
Vegetable imports have been declining since March, despite reduced import taxes. The Economy Ministry blames the decline on a ban on employing foreigners in retail trade in market places, which came into effect on April 1, 2007.
Over the past few months, inflation has been rising faster than officials planned. Rising producer prices have spurred inflation expectations as well. Rising inflation was also provoked by the government’s decision to index the prices for natural monopoly products and housing and utilities services. Plans to significantly increase budget spending on development projects also played a role. Sochi is also an example, where prices soared after the city won the right to host the 2014 Winter Olympics. The inflow of speculative capital increased and caused monetary problem.
Capital investments in Russia grew by 27.2% in June 2007, compared with the same month a year earlier, and amounted to 579.8bln rubles. In January-June 2007 these investments rose by 22.3% compared with the same period a year earlier. In 2006 investments grew by 13.5% and amounted to 4,482trln rubles.
According to Rosstat, Oil export rose by 5.4% in January-May 2007. For the same time period Russia exported 53.8% of the total extracted oil (58.1% in May 2007).
According to the Economy Ministry, the real appreciation of ruble can amount to 5.1-5.2% in 2007 which is slightly higher than expected earlier 4.5-5.0%.
Russia updated foreign trade statistics
According to Rosstat, Russia’s foreign trade under the balance of trade methodology expanded by 21.1% to $196.627bn in January-May 2007, compared with the same period in 2006. Exports rose by 9.3% to $128.649bn, while imports surged by 52.4% to $67.978bn. In May 2007, foreign trade stood at $47.9bn, including $30.3 in exports and $17.6bn in imports, with registered trade surplus of $12.7bn.
Industrial production is rising in Russia
According to Rosstat, Russia’s industrial production index reached 107.7% in January-June 2007 compared with the same period in 2006. In June 2007, the index amounted to 110.9% compared with a year earlier, and 104.5% compared with May 2007. As reported earlier, the index grew by 7.4% year-on-year in January-June 2007.
Economic trends
Government
The Russian government has set the crude oil export duty at $223.9 per tonne starting August 1, 2007. The export duty on light oils is to be $163.2 per tonne. The export duty on oil set on June 1, 2007, amounted to $200.6 per tonne. The export duties on light oil products are at $147.5 per tonne respectively.
Russian Economy Minister German Gref did not rule out the possibility that the United Aircraft Building Corporation (UABC) will make an IPO soon after it completes its restructuring.
Production of meat and bear in H1 2007 grew by 18.3% and 31.4% respectively compared with the same period a year earlier.
According to Rosstat, total salary indebtedness in Russia grew by 1.5% in June and amounted to 4,537bln rubles as of July 1, 2007.
World events
International Cooperation
News Corp reached preliminary agreement to acquire Dow Jones & Co for $5bn. Soon the approval of the deal will be considered.
Diplomatic conflict occurred last week between Russia and Great Britain that resulted in expulsion of Russian diplomats from London and 4 Britain diplomats from Moscow, which almost lead to the cancellation of diplomatic cooperation between two countries.
Sources: The Central Bank of Russia, Reuters, Cbonds, The Finance Ministry
Russian Money Market
Last week overnight rate lay in the band of 3.24–4.11%, for one week rubles could be found at 3.92-4.94%, and for one month at 3.90-5.19%. Overnight rate closed the week at 4.11%.
The liquidity decreased and overnight rate increased on the money market last week compared to the previous week.
Balances on C/A opened the week at 451.6bln rubles and closed it at 452.5bln rubles. Bank deposits with the CBR opened the week at 706.8bln rubles and closed it at 656.7bln rubles. Bank deposits with CBR decreased by almost 50bln rubles last week.
The total flow of balance on C/A and deposit accounts with CBR decreased by 547bln rubles last week compared to the previous week. The average total liquidity balance per day decreased to 1,138bln rubles compared to 1,248bln rubles in previous week.
GOLD AND FOREIGN CURRENCY RESERVES:
CBR reported that Russia’s gold and foreign currency reserves amounted to $411.2bln as of July 13, 2007, stepping up by $2.8bln or 0.69% from their previous level.
The Economy Ministry’s forecast (will rise by): $90-95bln in 2007, $48.3-71.3bln in 2008, $23.6-51.5bln in 2009, and $14.44-25.5bln in 2010.
However, since January 1, 2007, the reserves have already expanded by $108.2bln or 35.71%.
US Treasuries market was again in focus for the whole last week. The yield of UST10 fell by 16bps from 5.11% to 4.95% last week. Thus the psychological level of 5.00% was broken down. On Friday it closed at 4.95%. Yields on short tenor US papers also fell last week, thus yield of UST2, for example, fell from 4.92% to 4.77%. European benchmarks’ yields also declined considerably.
Benchmarks of emerging markets stayed almost flat last week.
Russian ruble bond market was quite with low volume during the whole week. Spikes in trade volume were only on Friday for papers except OFZ and on Thursday for OFZ.
Weekly top movers from 1 sttier and OFZ were Lukoil-4 (+0,55), FSK UES-4 (+0,45), Gazprom-9 (+0,41), RZhD-7 (+0,38), MosOblast-7 (+0,30).
Weekly top movers from 2 nd-3rdtiers were RussNeft (+4,81), MAIR-3 (+0,22), MosEnergo (+0,21), OGK-6 (+0,17), TumenEnergo-2 (+0,18).
Weekly top Eurobond movers were Venezuela-25 (+1,81), Venezuela-27 (+1,80), Venezuela-34 (+1,38), Venezuela-16 (+1,24), Venezuela-20 (+1,13).
US Treasuries market was again in focus for the whole last week. The yield of UST10 fell by 16bps from 5.11% to 4.95%. Thus the psychological level of 5.00% was broken down. On Friday it closed at 4.95%.
Russian FX Market
RUSSIA’s FX OUTLOOK
USD/RUB:
The pair was traded in the band of 25.38–25.46 and fell by 0.14% last week. Daily trade volume on USD/RUB lay in a band of $2.3-3.4bln on the Russian currency market. Trade volume stayed the same compared to the previous week. The dollar was trading at RUR 25.41 on MICEX at the very end of the week.
Russian Stock Market
MARKET PERFORMANCE: RTS continued to grow quite fast after breaking 2,000. This week we saw some attempts to advance further but they were unsuccessful. RTS closed the week near all time high and the market still looks upwards. Trade volume decreased steadily by the end of the week. Seems that those who have strong longs from near 2,000 do not want to close them but taking new risky longs at market tops prevents new buying to step in to the market. That’s why some pull back is possible. September future on RTS tagged its base asset and was trading above it for the whole week. It closed the week at 2,070.6 (-0.6%). MICEX and MICEX COMP indices closed the week at 3,389.02 (-1.06%) and 1,791.60 (flat) respectively.
Last week oil prices advanced again. Brent, Urals, and WTI rose by 1.21%, 0.62% and 2.22% and closed the week at $80.13, $76.49, and $75.53 respectively. Stock prices of Russian oil companies have been rising for four consecutive weeks. Last week they rose by 0.81% but from the beginning of the year they still fell by 0.74%.
FINANCIALS: Power Machines (net loss increased 3.26 times to $132.2m in 2006), Northwest Telecom (net profit dropped by 10% to $49.88m in 2006, compared with the same figure in 2005), Magnitogorsk Iron and Steel Works (MMK) (net profit grew by 68.12% $1.03bn in the first half of 2007 compared to the same period a year earlier), Bank of Moscow (net profit stood at $134m in the first half of 2007, a 20% increase from the same period a year earlier), RAO UES (net profit surged 5.9 times to $5.88bn in 2006), Sberbank (net profit rose by 31.4% to $2.1bn in H1 2007 compared with the same period in 2006).
ISSUES, ACQUISITIONS & INTENTIONS:
Tomskenergo will consider merger with TGK-11 at an extraordinary meeting of shareholders set for August 24, 2007.
Sibir Airlines announced debut bond issue date (will launch a $90.3m bond issue on July 24, 2007).
Vneshtorgbank is not considering any direct asset swap proposals involving its stake in EADS (European Aeronautic Defense and Space Co).
Aeroflot - Russian Airlines was open to new proposals regarding Alitalia from the Italian government. But Italian offer was too high which together with poor financial situation of Alitalia was not the fair deal if accepted. Aeroflot cancelled the order. Italian government, intern, cancelled offer on sale of Alitalia due to the absence of candidates to buy the company.
Gazprom is anticipated to launch the roadshow of its upcoming Eurobond issue on July 23, 2007.
Norilsk Nickel is expected to acquire stake in OGK-3 during OGK-3’s additional share issue.
The Federal Financial Markets Service has approved the placement and circulation of 25% of shares of the secondary public offering of the Moscow-based Open Investments outside Russia. The total issue will worth nearly $93.95m.
DEALS: Inter RAO UES is launching electricity supplies to Romania.
Aeroflot will consider a deal to buy 22 long-haul Boeing 787 Dreamliner and 22 long-haul Airbus A350 aircraft.
VTB Group’s mortgage loan portfolio has increased 1.8 times to $1.681bn. As of the end of Q1 2007, VTB24’s mortgage market share stood at 7.7% in Russia and 15.8% in Moscow.
Sitronics, a Sistema subsidiary, has founded a new business unit – Sitronics Nanotechnology, designed to tackle nanotechnology development with regard to semiconductors. Company believes that the development in the nanotechnology sector is indispensable in order for Russia to become a serious competitor on the global market.
Russian telecommunication companies plan to strengthen their market positions by acquiring smaller operator companies. In particular, Rostelecom announced such plans. Last year it acquired ZAOâ€Globus-Telecom†and ZAO “Zebra-Telecom†and is not going to stop this trend.
The State plans to privatize Rosselkhozbank and attract a wide range of investors to it. Doing this, the State plans to decrease its stake in Sberbank and VTB. Currently 100% of Rosselkhozbank belongs to the State.
FLAT is the best word describing situation on the Russian Stock market last week. Nothing special. RTS made attempts to advance further and closed the week near all time high still looking upwards. Totally RTS rose by 0.41%, MICEX stayed almost flat.
Source: Reuters.
US Stock market. Oil Prices. World’s Indices.
DOW:
Something strange happens with DOW. And this “strangeâ€, seems, is called a bull market. At the beginning of the week DOW continued to rise and it tested a psychological level of 14,000 and reached maximum at 14,020 on Tuesday, thus beating expectations of all analysts. On Wednesday it fell by 200 points but recovered the same day. On Thursday rising technological stocks pushed the market up. On Friday it fell by 200 points again and closed the week at 13,850. TICS data showed that the financial liquidity is rising and there is still interest from foreign investors to buy U.S. assets.
US ECONOMIC DATA PUBLISHED:
NY Fed Empire State manufacturing index (June) 26.46 vs. 25.8.
PPI excluding food and energy (June) 0.3% vs. 0.2%.
PPI (June) -0.2% vs. 0.9%.
TICS long-term (May), bln +126.1 vs. +80.3.
TICS (May), bln +105.9 vs. +97.8.
Capacity utilization (June) 81.7 vs. 81.3.
Industrial production (June) vs. -0.1%.
CPI (June) 0.2% vs. 0.7%.
CPI excluding food and energy (June) 0.2% vs. 0.1%.
Housing starts (June), mln 1.467 vs. 1.434.
Building permits (June), mln 1.406 vs. 1.501.
Jobless claims (week to 14.07) 301К vs. 308K.
Leading indicators (June) -0.3% vs. 0.3%.
Philadelphia Fed index (July) 9.2 vs. 18.0.
GDP (Q2) preliminary 0.8% vs. 0.7%.
HIGHLIGHTS FROM LAST WEEK’S SPEECHES:
GERMANY ECOMIN: Outlook for continuation of upswing favorable.
ECB QUADEB: ECB against “brutal, excessive” Euro moves. Interest rate path to become “less obvious”. ECB hasn’t decided yet to hike rates in September. EU recovery clearly in “strong upswing”.
GERMANY ZEW Koehler: Further Euro rise will hit Germany exporters. Further ECB rate hike will lead to Euro rise.
FED, Hoenig: US econ will grow modestly over rest of 2007.
FED: Bernanke, asked about subprime, said they are not as good as thought and there will clearly be losses.
Bank of England, Tim Besley: Past rises in interest rates should work over time to dampen consumption.
UK BROWN: No proposals to join the Euro in near future.
OIL PRICES:
Last week oil prices advanced again. Brent, Urals, and WTI rose by 1.21%, 0.62% and 2.22% and closed the week at $80.13, $76.49, and $75.53 respectively. Stock prices of Russian oil companies have been rising for four consecutive weeks. Last week they rose by 0.81% but from the beginning of the year they still fell by 0.74%.
On Monday August Brent crude oil futures hit $78.00 – highest level since August 9, 2006. 10
EIA oil data for July 13 week: U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) declined by 0.5 million barrels. Thus latest rising of oil inventories for several consecutive weeks stopped. U.S. crude oil inventories remain well above the upper end of the average range for this time of year.
FED Bernanke: Energy prices will remain high but not continue rising. Said if energy does continue to rise, bigger inflation probably will be an issue.
This Week’s Agenda
Bond placements*
Economic Data
July 24
Sibir Airlines to sell RUB 2.3 bio of domestic bonds with a 5-years maturity and a put option from par in the middle of the 2ndyear.
July 25
Rosskat-Capital to sell RUB 1.2 bio of domestic bonds with a 3-years maturity and a put option from par in the middle of the 2 ndyear.
Kubanenergo to sell RUB 3 bio of domestic bonds with a 3-years maturity.
Severstal-avto to sell RUB 3 bio of domestic bonds with a 6-years maturity and a put option from par at the end of the 3 rd year.
July 26
URSA Bank to sell RUB 5 bio of domestic bonds with a 5-years maturity and a put option from par in the middle of the 3rdyear.
Sinergia to sell RUB 2 bio of domestic bonds with a 3-years maturity and a put option from par in the middle of the 2nd year.
Magnolia to sell RUB 1 bio of domestic bonds with a 3-years maturity and a put option from par at the end of the 2 ndyear.
* We publish placements with size larger than 1bln rubles.
July 24
USA: ICSC-UBS Store Sales
USA: Redbook
USA: State Street Investor Confidence Index
July 25
USA: MBA Purchase Applications
USA: Existing Home Sales June
USA: EIA Petroleum Status Report 07/20
USA: Beige Book
July 26
USA: Durable Goods Orders June
USA: Jobless Claims 07/21
USA: Help Wanted Index June
USA: New Home Sales June
USA: EIA Natural Gas Report 07/20
USA: Money Supply
July 27
USA: GDP (advance) Q2
USA: Consumer Sentiment July
Sources: The Central Bank of Russia, Reuters, Cbonds, Ministry of Finance
RTS
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