Russian Markets Research September 3-9, 2007
Russia’s inflation amounted to 0.1% in August 2007 and 6.7% from the beginning of the year. The Economy Ministry, however, predicts high inflation risks despite lower inflation in comparison to 2006 due to a hike in energy prices on the global market. State officials believe that Russia’s annual inflation will remain within the forecasted 8% in 2007 in spite of the fact that Russia outstrips the predicted rate.
Russian domestic money market overnight rates were in the band of 4-6% last week for the first-tier banks. Comfortable enough C/A and decreasing of REPO borrowings from the CBR turned the mood of the money market to the positive side.
As many emerging markets, Russian stock market played back most of the fall which was caused by the negative situation in US subprime mortgage sector. Friday surprised with very awful data on the US employment which pushed almost all world stock markets down. Russia was not an exception. On Friday RTS fell slightly below 1,900 on market close. RTS fell by 1.13% last week and closed the week at 1,898. Stock prices of Russian oil companies fell by 0.93% last week.
Foreign markets frightened domestic bond markets of emerging countries, and Russia is not an exception. Selling was everywhere domestically where liquidity was. Russian bond market fell considerably last month. Market participants still prefer to sell ruble bonds, however selling activity decreased. Strong buyers haven’t come yet. Investors are ready for bad news from the US and buy emerging market papers still unwillingly.
USD/RUB was traded in the band of 25.58–25.72 and fell by 0.01% last week. Daily trade volume on USD/RUB lay in the band of $1.5-3.5bln on the Russian currency market and grew by $0.35bln last week compared to the previous week. USD/RUB was traded at 25.5801 on MICEX at the very end of the week.
US RATE: Negative construction spending and shocking bad payrolls data made the probability that the FED will decrease the rate much higher. We think that it is the right time for the FED’s rate to be cut has come. Decreasing it by 50 basing points would be well-timed measure, especially taken into consideration that the US 10-year treasuries and FED interest rate futures and some other financial instruments already priced at least 50pb rate cut. The market should accept the cut very positively.
The decline on the US subprime mortgage market continued to send shockwaves to all financial markets outside the US.
Now all the attention is focused on the FED’s decision on main interest rate which will be declared on the coming meeting on September 18.
European Central Bank and Bank of England left their main interest rates on hold last week.
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September 16th, 2007 at 5:29 am
Learned alot by reading this. Thanks. Ina