Russian Markets Research. July, 2007 in Brief

Last Month in Brief
Oil prices advanced by 8% in the average last month!!
Latest economic data showed a solid growth of the Russian economy. Russia advanced forecasts for its future economic performance. According to the innovative scenario, annual GDP growth will amount to 6.1% in 2008–2012, 6.7% in 2013–2017, and 6.7% in 2018–2020. Inflation is still higher than expected by the State.
The liquidity decreased significantly and overnight rate increased on the money market last month. Situation almost returned to the one being before Yukos auctions. Overnight rate closed the month at 4.55%.
US Treasuries market was very tight for the whole last month. The yield of UST10 fell by 25bps from 4.99% to 4.74% last month and returned more or less to its normal position.
Last month Bank of England and European Central Bank left their main interest rates on hold.
Still there is little reason for the Euro to stop climbing. The pair fell by 0.34% and closed the month at 1.3672. The pair grew to 1.3840 in the following three days of the current month. If economic data will not spoil the picture, then EUR/USD could advance to above $1.3900 soon in spite of some appeared short-term technical selling signals.
Last month RTS advanced considerably and posted new life-time high at 2,091. However moving higher became difficult and later market saw 1,960/70 again after many market participants preferred to close long positions taken from 2,000 and deep below. But perspectives of the growth of the Russian Stock Market become clearer. RTSI grew by 4.30% and closed the month at 1,993.
DOW started the month at 13,535 and closed it at 13,211. Last month it refreshed its lifetime high and posted a new historical maximum at 14,021. On July 26 DOW rushed down by almost 500 points. A psychological level of 14,000 appeared to be a very strong and pushed DOW to a strong support of 13,200 which came to force since May 2007. Breaking this level will spoil US Bull market.

Last month oil prices showed solid growth and approached their maximum levels. Brent, Urals and WTI grew by 5.56%, 6.37% and 9.97% and closed the month at $78.06, $74.51 and $78.20 respectively. Stock prices of Russian oil companies grew by 4.19% last month but from the beginning of the year they still fell by 5.94%.
WORLD INDICES
Last month major world market indices fell considerably. Losers of the month were Nikkei225 (-4.95%), DAX (-4.70%), CAC40 (-4.58%), S&P500 (-4.22%), TOPIX (-4.17%).
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%.
Russian Economic Update
According to Rosstat, inflation amounted to 0.9% in July 2007 and 6.6% from the beginning of the year.
In July 2006 it was 0.7% and in January-July 2006 it was 6.9%.
According to the innovative scenario, annual GDP growth in Russia will amount to 6.1% in 2008-2012, 6.7% in 2013-2017, and 6.7% in 2018-2020. In addition, Russia’s share of the global economy is expected to expand to 2.6% in 2006, 3% in 2015 and 3.4% in 2020, with engineering exports projected to double by 2015 and increase fivefold by 2020.
According to the innovative development scenario, Russia will increase fixed investment by 10.7% annually between 2008 and 2017 and a slightly weaker 9.6% each year in 2018-2020.
Russian car makers lose domestic market share
According to the forecast of analytical company “ASM Holding”, Russian companies will increase the production of cars by 7.7% in 2007 compared to 2006.
1,26mln cars were produced in Russia in 2006, 1/3 of which corresponds to foreign cars which are produced locally in Russia. Car market in 2007 is estimated to be 2,5mln cars. Sell of foreign cars will amount as estimated to 1,6mln in 2007. Russian car makers lose their positions on the domestic market at the very catastrophic pace. Volume of production of Russian car makers will be stable, but due to an increase of production of foreign cars locally, share of foreigners will increase.
IMF advanced the forecast of Russian economy growth till 7% in 2007 and 6.8% in 2008. Previous forecasts were at 6.5% and 5.9% respectively.
Economic trends
Government
According to the innovative scenario, annual retail sales growth in Russia will average 8.4% between 2008 and 2012, 6.5% in 2013-2017 and 6.3% in 2018-2020.
OAO “RTS” is considering the probability of starting trading its shares on RTS. End this is not an innovation. NYSE’s stocks are traded on NYSE. LSE’s stocks are traded on LSE.
Per-capital GDP of Russia is expected to reach at least $21,000 by 2015 and $30,000 by 2020 according to Russia’s innovative development scenario, coming close to Eurozone countries’ current development level.
According to a new federal law on the state real estate registry signed by Putin, Russia is expected to form a unified registry system for government property. The law will come into effect on March 1, 2008.
Capital investments in Russia grew by 27.2% in June 2007, compared with and amounted to 579.8bln rubles. In January-June 2007 these investments rose by 22.3% compared with the same period a year earlier.
According to Rosstat, total salary indebtedness in Russia grew by 1.5% in June 2007 and amounted to 4,537bln rubles as of July 1, 2007.
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).
OAO “RTS” is considering the probability of starting trading its shares on RTS. End this is not an innovation. NYSE’s stocks are traded on NYSE. LSE’s stocks are traded on LSE.
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.
According to the Russian Federal Customs Service, Russia’s natural gas exports dropped by 14.58% to 69.7bn cubic meters in January-May 2007 compared to the same period a year earlier.
The MICEX Stock Exchange started to publish its client statistics. By the end of the H1 2007 MICEX had 385,814 unique clients. From them: 368,644 individuals, 11,825 legal entities, 1,760 – non-residents, 3,585 – clients given their capital to asset managing. Total amount of clients is 464,032 as of July 1, 2007.
Russia narrows fuel and energy export share. Fuel and energy accounted for 65.8% of Russia’s exports outside the CIS in January-May 2007, down from 71.4% in the same period a year earlier.
Rosselkhoznadzor abandoned supplies of cattle breeding from almost 80 foreign companies.
According to Euroset, the real number of mobile communication service subscribers grew by 7.1% to 77.8m people in Russia in the first six months of 2007.
According to the Russian Finance Ministry, Russia’s federal budget surplus amounted to nearly $41.86bn in the first six months of 2007.
According to Euroset, retail sales of mobile phones dropped in Russia in Q2 2007 by 6% compared to the same period of a year earlier.
MICEX will start publishing two new indices: MICEX M&M (MICEX Metals and Mining Index) and MICEX MNF (MICEX Manufacturing Index).
International Olympic Committee (IOC) has chosen Sochi as the host city of the XXII Winter Olympic Games.
According to the CBR, Russia’s state debt surged by 31.3% to $339.3bn in Q1 2007 compared to the same period a year earlier.
Russia’s printing market is going through difficult times: it is more expensive to have a book or a magazine printed in Russia than abroad.
According to the Russian Finance Ministry, Russia’s domestic debt climbed 12.9% to USD45.12bn as of June 2, 2007.
International Cooperation
According to the Georgian State Statistics Department, Russia no longer Georgia’s biggest trade partner. Trade between Georgia and Russia fell 4.4% to $322m in Q1 2007, compared to the same period a year earlier.
Russia posted higher proceeds from customs duties. The Russian Federal Customs Service contributed a total of USD54.57bn in the first six months of 2007, which is 8% more than in the same period a year earlier.
Sweden Scania plans to build a factory in Russia which will produce its own trucks and autobuses locally.
According to the Russian Finance Ministry’s official statement, Russia’s Stabilization Fund stood at USD121.68bn as of July 1, 2007.
Diplomatic conflict occurred last month 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.
Russia will still be able to regulate foreign countries’ access to Russia’s natural resources, as well as control gas prices, after it joins the World Trade Organization (WTO).
Russia and Uzbekistan are looking into the possibility to construct new gas transportation systems. The two countries also discuss enrichment of uranium, produced by Uzbekistan, in Eastern Siberia.
Rostechnadzor is planning to check Russian tobacco factories.
Commodity exchange trade in refined oil products is expected to begin on October 1, 2007.
CBR deprived license from Alexcombank due to the violation of the latter of anti-money laundry law.
Putin signed the law protecting Russian intellectual property which will not allow foreigners to use old soviet brands and trade marks.
World Events
News Corp reached preliminary agreement to acquire Dow Jones & Co for $5bn. Soon the approval of the deal will be considered.
Sources: The Central Bank of Russia, Reuters, Cbonds, The Finance Ministry
Russian Money Market
Last month overnight rate lay in the wide band of 2.15–4.55%, for one week rubles could be found at 2.29-4.94%, and for one month at 2.86-5.12%. Overnight rate closed the month at 4.55%.
The liquidity decreased significantly and overnight rate increased on the money market last month. Situation almost returned to the one being before Yukos auctions.
Balances on C/A opened the month at 528.6bln rubles and closed it at 429.9bln rubles. Bank deposits with the CBR opened the month at 758.6bln rubles and closed it at 449.7bln rubles. Bank deposits with CBR decreased by more than 300bln rubles last month. As usual days of tax payments led to shuffling of funds between deposits in bank of Russia and correspondence accounts.
The total flow of balance on C/A and deposit accounts with CBR decreased by 8,7trln rubles last month compared to the previous month. The average total liquidity balance per day decreased to 1,159bln rubles compared to 1,631bln rubles in previous month.
Russian Stabilization Funds reached $127.48bln, stepping up by $5.80bln or 4.77% from its previous level.
GOLD AND FOREIGN CURRENCY RESERVES:
CBR reported that Russia’s gold and foreign currency reserves amounted to $417.3bln as of July 27, 2007, stepping up by $4.2bln or 1.02% from their previous level. Reserves have been rising for FOUR weeks straight at the fast pace. 3
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 $114.3bln or 37.72%.
Gold and foreign currency reserves
US Treasuries market was very tight for the whole last month. The yield of UST10 fell by 25bps from 4.99% to 4.74% last month and returned more or less to its normal position.
Thus the psychological level of 5.00% was broken down considerably. Yields on short tenor US papers also fell last month, thus yield of UST2, for example, fell from 4.84% to 4.56%. European benchmarks’ yields also declined but less than their American brothers.
Quite the opposite, yields of benchmarks of emerging markets grew by 4-5% in the average. Yield of Russia10 grew by 6.72% and yield of Brazil40 grew by 5.82%.
An interesting fact is that latest report of Commodity Futures Trading Commissions showed considerable growth of net long non-commercial positions in UST10.
Yields of benchmarks of emerging markets grew last month. Yield of Brazil 40 grew by more than 8.18% and reached 6.54% by the end of the month.
Volume of Russian domestic corporate bond market again grew considerably in July 2007 compared to June 2007, GKO-OFZ market and market of corporate Eurobonds grew at a slower step in July 2007.
Russian FX Market
RUSSIA’s FX OUTLOOK
USD/RUB:
The pair was traded in the band of 25.37–25.75 and fell by 0.51% last month. Daily trade volume on USD/RUB lay in a band of $0.9-5.5bln on the Russian currency market. Trade volume increased by almost $6bln compared to the previous month. The dollar was trading at RUR 25.5435 on MICEX at the very end of the month.
Sources: RTS, Reuters
Russian Stock Market
MARKET PERFORMANCE: Last month RTS advanced considerably and posted a new life-time high at 2,091. However moving higher became difficult and later market saw 1,960/70 again after many market participants preferred to close long positions taken from 2,000 after the Index was not able to get higher than 2,090 for some considerable period of time. But perspectives of the growth of the Russian Stock Market become clearer. September future on RTS grew last month together with its base asset and closed it at 1,953 (+3.1%). MICEX and MICEX COMP indices closed the month at 3.306 (+0.78%) and 1.734 (+3.07%) respectively.
Last month oil prices showed solid growth and approached their maximum levels. Brent, Urals and WTI grew by 5.56%, 6.37% and 9.97% and closed the month at $78.06, $74.51 and $78.20 respectively. Stock prices of Russian oil companies grew by 4.19% last month but from the beginning of the year they still fell by 5.94%.
FINANCIALS: ALROSA (net profit grew 1.55 times to $188m in Q2 2007 compared to the same period a year earlier), NOVATEK (net profit under RAS went up by 6.8% to $285m in H1 2007 compared to $267m in the same period a year earlier), Power Machines (net loss increased 3.26 times to $132.2m in 2006), 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), OGK-4 (net profit surged to $208m in 2006 compared to $6.35m in 2005), Mechel (net profit surged three-fold to $205.014m in Q1 2007 compared to the same period a year earlier), Severstal (net profit surged by 82.5% to $396m in Q1 2007 against $217m in the same period a year earlier), Gazprombank Group (net profit surged by 109% to almost $1.331bn in 2006), Transneft (net profit dropped by 10.1% to $654min Q1 2007 compared to the same period a year earlier).
ISSUES, ACQUISITIONS & INTENTIONS:
Rosbank started the placing of its $15.53m additional share issue.
Norilsk Nickel is going to launch a share buyback program from stockholders.
Comstar - United TeleSystems is planning to purchase two or three regional fix-line telephone operators.
Interros announced its plans to sell its stake in Power Machines.
RAO UES approved a purchase of HydroOGK’s shares for a total of $671m as part of HydroOGK’s additional share issue.
Italian government cancelled offer on sale of Alitalia due to the absence of candidates to buy the company. Aeroflot - Russian Airlines refused to buy the company on such unattractive conditions.
Norilsk Nickel is expected to acquire stake in OGK-3 during OGK-3’s additional share issue.
Rosneft confirmed it has sold its 50% stake in Tomskneft to Vnesheconombank.
Sberbank splitted its shares a 1-for-1,000 for common shares and a 1-for-20 for preferred shares.
Gazprom boosted its stake in Mosenergo from 42.7% to 49.9%. Thus, Gazprom and it affiliates have consolidated a controlling stake (more than 52%) in the company.
Novolipetsk Steel (NLMK) has sold a 50.08% stake in its subsidiary Lipetskcombank to Bank Zenit. The transaction value is about $44 million.
The Russian management company Leader, acting on behalf of Gazfond, has purchased a 25,000004% stake in SIBUR Holding.
Rosneft has sold 50% in Tomskneft VNK to Vnesheconombank.
Last month RTS advanced considerably and posted new life-time high at 2091. However moving higher became difficult and later market saw 1960/70 again after many market participants preferred to close long positions taken from 2,000 and deep below. But perspectives of the growth of the Russian Stock Market become clearer. RTSI grew by 4.30% and closed the month at 1,993.
Source: Reuters.
US Stock market. Oil Prices. World’s Indices.
DOW: DOW started the month at 13,535 and closed it 13,211. Last month it refreshed its lifetime high and posted a new historical maximum at 14,021. On July 26 DOW rushed down by almost 500 points. A psychological level of 14,000 appeared to be very strong and pushed DOW to a strong support of 13,200 which came to force since May 2007. There were tree attempts already to break this level but they were unsuccessful. Breaking this level will spoil US Bull market. 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:
Existing home sales (June), mln 5.75 vs. 5.99. New home sales (June) 834K vs. 893K. Durable goods orders excluding defense (June) +1.9% vs. -3.2%. Durable goods orders excluding transportation (June) -0.5% vs. -1.0%.
Durable goods orders (June) 1.4% vs. -2.8%. Help-wanted index (June) 26 vs. 27. GDP (Q2) preliminary Y/Y 3.4% vs. 0.7%. Michigan sentiment index (July) final 90.4 vs. 92.4. 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. Leading indicators (June) -0.3% vs. 0.3%. Philadelphia Fed index (July) 9.2 vs. 18.0. Consumer credit May +12.9 bln vs. +2.3 bln April. Wholesale inventories May 0.5% vs. 0.3% April. Import May 192.2 bln vs. 188.0 bln April. Export May 132.4 bln vs. 129.5 bln April. International trade May -60.0 bln vs. -58.5 bln April. Federal budget June +27.5 bln vs. -67.7 bln May. Export prices June 0.3% vs. 0.1% May. Retail sales June -0.9% vs. 1.4% May. Import prices June 1.0% vs. 0.9% May. Retail sales excluding auto June -0.4% vs. 1.3% May. Business inventories May 0,5% vs. 0.4% April. Michigan sentiment index July preliminary 92,4 vs. 85.3 June. ISM index June 56.0 vs. 55.0 May. Factory orders May -0.5% vs. 0.3% April. ISM services index June 60.7 vs. 59.7 May. Nonfarm payrolls June 132К vs. 190К May. Unemployment rate June 4.5% vs. 4.5% May. Average hourly earnings June 0.3% vs. 0.4% May. Average workweek June 33.9 vs. 33.8 May. Personal income (June) 0.4% vs. 0.4% Personal spending (June) 0.1% vs. 0.5% Employment cost index (Q2) 0.9% vs. 0.8% Chicago PMI (July) 53.4 vs. 60.2 Consumer confidence (July) 112.6 vs. 105.6 Construction spending (June) -0.3% vs. 0.9% ISM index (July) 53.8 vs. 56.0
HIGHLIGHTS FROM LAST MONTH’S SPEECHES:
ECB’s Stark: Strong Euro ultimately helps economy’s development.
ECB, QUADEN: Future ECB course to depend on available data on inflation. 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”.
ECB TRICHET: Global economy still growing very strongly.
GERMANY ECOMIN: Outlook for continuation of upswing favorable.
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.
GERMANY ZEW Koehler: Further Euro rise will hit Germany exporters. Further ECB rate hike will lead to Euro rise.
ECB GARGANAS: Sees signs of quality deterioration in US subprime loans. Impact of US subprime woes limited so far but may spread to other markets.
FED, Plosser: Consumer demand is being maintained and US exports should be helped by the weak dollar.
OIL PRICES: Oil continued lower, with prices correcting after recent strong gains, as OPEC gave its first hint that it may consider hiking oil output in the face of higher prices. But new OPEC president Mohammed Al Hamli said in an interview that the organization is “concerned” about higher prices, hinting the cartel may up output sometime later this year. 10
Oil prices slipped for some days on forecasts of higher refinery production in the United States that would ease worries over fuel supplies during peak summer demand. Last month oil prices showed solid growth and approached their maximum levels. Brent, Urals and WTI grew by 5.56%, 6.37% and 9.97% and closed the month at $78.06, $74.51 and $78.20 respectively.
High/Low of oil prices for the last month: Brent ($73.95 – $80.13), Urals ($70.05 – $76.49), and WTI ($71.11 – $78.20). Stock prices of Russian oil companies grew by 4.19% last month but from the beginning of the year they still fell by 5.94%. 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. EIA reports showed mixed results in U.S. commercial crude oil inventories – they rose and fell by 1mln barrels in the average.
WORLD INDICES
Last month major world market indices fell considerably. Losers of the month were Nikkei225 (-4.95%), DAX (-4.70%), CAC40 (-4.58%), &P500 (-4.22%), TOPIX (-4.17%).
This Week’s Agenda
Bond placements*
Economic Data
August 07
M.O.R.E Plaza to sell RUB 1 bio of domestic bonds with a 3-years maturity and a put option from par at the end of the 1st year.
DVTG-Finance to sell RUB 1 bio of domestic bonds with a 3-years maturity and a put option from par in the middle of the 2nd year.
August 09
Miratorg Finance to sell RUB 2.5 bio of domestic bonds with a 5-years maturity and a put option from par in the middle of the 2nd year.
August 10
Eurostyle to sell RUB 1 bio of domestic bonds with a 3-years maturity and a put option from par at the end of the 1ndyear.
August 07
USA: ICSC-UBS Store Sales
USA: Productivity and Costs Q2
USA: Redbook
USA: FOMC Announcement
USA: Consumer Credit June
August 08
USA: MBA Purchase Applications
USA: Wholesale Trade June
USA: EIA Petroleum Status Report 08/03
August 09
USA: Jobless Claims 08/04
USA: EIA Natural Gas Report 08/03
USA: Chain Store Sales
USA: Money Supply
August 10
USA: Import and Export Prices July
USA: Treasury Budget July

Sources: The Central Bank of Russia, Reuters, Cbonds, Ministry of Finance
RTS

Related posts:

1. Russian Markets Research July 9-15, 2007
2. Russian Markets Research July 16-22, 2007
3. Russian Markets Research July 1-8, 2007
4. Russian Markets Research July 23-29, 2007

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