Russian Markets Research June 11-17, 2007
World markets rose last week!
Released economic data again showed that Russian economy continues to grow. However the state’s inflation forecast now seems not as accurate as it was considered before.
Traders on UST10 wait for breaking the downward trend to start accumulating long positions in “long papers” again.
Last week USD/RUB crossed psychological level of 26RUB.
The Euro started recovering boosting bullish hopes again.
Recovery week for the Russian stock market! RTS rose by 1,63%, MICEX rose by more than 5%, Russian oil stocks rose by 5,22%, SEP future on RTS rose by 4,03% and closed the week above RTSI.
Starting from Wednesday to Friday DOW rallied up by 400 points, returned back to an upward trend and almost reached its high on June 1, 2007. The DOW closed the week at 13643. TIC report showed a considerable increase in foreign purchases of US securities.
Oil Brent, Urals, and WTI rose by 2,54%, 1,10%, and 5,03% respectively last week.
Russian Economic Update
Revised GDP is 7,9% ($252mln) in Q1 2007
According to the revised data of Rosstat, GDP amounted to 7,9% ($252mln) in Q1 2007 in Russia. Russian authorities previously named various GDP growth rates- from 7.7% to 8.4%.
The CBR forecasts that consumer crediting will grow by 60-65% in 2007
The CBR forecasts that consumer crediting will grow by 60-65% in 2007, which is 1,5 times more than the forecasted growth of banking assets for 2007. The amount of overdue debts amounted to 2,6% in 2006, which is 0,7% higher than in 2005. Overdue debt growth rate figure will increase in 2007.
CBR attracted record amount of deposits from credit organizations in May 2007
CBR attracted deposits from credit organizations in May 2007 by 37% more than for the whole 2006. The record amount stood for 13,317trln rubles. In 2006 it amounted to 9,7trln rubles.
Russia faced the lack of gas
Russia faced the lack of gas. Chubais said that it is quite strange. Although, the demand stayed at high levels. As a result Russia started to use masut and coal more extensively.
Tax reform will be continued in Russia
New tax reform proposals will be announced in September or October 2007. It had not yet been decided whether tax rates should be reduced or budget spending increased. Apparently, businessmen would welcome tax reductions. But experts say tax cuts would not allow the government to meet budget spending targets in 2010.
Russia will join top five economies by 2020
According to Ivanov, in terms of the GDP, he said, Russia would join the world’s top five economies by 2020. At least 50% of Russian citizens will represent the middle class by 2020, and their living standards will come close to those of middle class people in industrially developed nations. The communications services market will grow more than 14-fold compared with 2006, and the IT market will more than double. Among mentioned problems were underdeveloped transport system and corruption, lots of difficulties for small and mid-sized businesses to enter the market and an unfair competition.
Foreign companies feel themselves comfortable in Russia
According to Financial Times, ¾ of foreign top-managers working in Russia forecast growth of their companies’ operations on Russian markets. In general foreign companies feel themselves comfortable in Russia and are satisfied with economic stability in spite of tightening relations of Russia with “The Westâ€.
Appreciation of ruble slowed down. Large foreign capital inflow is expected. Gold and foreign currency reserves grow fast. According to officials inflation is within planned target and is much lower than a year before. Increase of the liquidity on money market for the latest 1-2 months is due to YUKOS bankruptcy auctions and the initial public offerings by Russia’s two largest banks, Sberbank and VTB.
Sweden showed interest in supplies of energy directly from Russia
Sweden showed interest in supplies of energy directly from Russia, particularly from Russian atomic power stations. Rosatom interested in such cooperation.
Moldova posted higher trade deficit with Russia
Moldova’s negative trade balance with Russia expanded by $59.2mln to $108.4mln in January-April 2007 compared to the same period a year earlier. Moldova’s exports to Russia dropped 35.2% from $86.5mln to $56mln. The republic’s imports of Russian goods went up 12.8% from $145.7mln to $164.4mln. Russia’s share in Moldova’s total exports reduced from 27.6% to 15.1%, and in Moldova’s imports from 19.8% to 16.2%.
Russia showed higher mobile subscriber numbers
According to the Advanced Communications & Media (AC&M) consulting agency’s research, the number of mobile communication service subscribers grew by 1.1% to 158.52mln people in Russia in May compared to a month earlier. The number of mobile service subscribers in Moscow rose by 0.8%, to 27.765mln people in May compared to the previous month, and in St. Petersburg subscriber numbers increased by 1.3% to 9.102mln people.
Russia will form shipbuilding corporation
The Russian government will set up a united shipbuilding corporation. Russian Prime Minister Mikhail Fradkov signed a decree to this effect. The government will own a 100-percent stake in the new organization.
Government is going to get a loan from IBRD for court reform
The Russian government approved the Economy Ministry’s proposal to sign an agreement with the International Bank for Reconstruction and Development (IBRD) for a loan to finance a project to support court reform. Under the terms of the agreement, Russia will receive a 15-year $50mln loan with a 5-year grace period. Russian Prime Minister Mikhail Fradkov signed a decree to this.
Russia increased the production of vodka by 32,2% for the first five month of 2007
According to National Alcohol Association, Russia increased the production of vodka by 32,2% for the first five month of 2007 compared with the same period of the previous year. In May production of vodka increased by 3,4%.
Governors of NYMEX consider the probability to sell the bourse
Governors of NYMEX consider the probability to sell the bourse to NYSE Euronext, Deutsche Boerse AG or Chicago Mercantile Exchange Holdings Inc. (CME). The price could be at approx. $14,3 or $155 per share. Negotiations with all three competitors took place already. The price of NYMEX shares rose by 12% last week after American regulators approved the merge of Chicago Board of Trade and CME.
Liquidity balances and deposit rates
Russian Money Market
Last week O/N rate lay in the band of 2,90–3,41%, for one week rubles could be found at 3,20-4,14%, and for one month at 3,10-4,33%. O/N rate increased to 3,41% by Friday last week.
O/N rates slightly fell by the end of trading sessions at the beginning of the last week but slightly increased at the end of the last week. Now we observe the level of liquidity where rates do not fall greater and even slightly rise when liquidity rose.
Liquidity slightly decreased on the money market last week, partially due to income tax payments on June 13 and advance payments of the unified social tax and of the retirement insurance on June 15.
Balances on C/A increased from 459,0bln rubles on Wednesday to 500,4bln rubles on Friday. Bank deposits with the CBR decreased from 1250,10bln rubles on Wednesday to 1198,40bln rubles on Friday. 3
The total flow of balance on C/A and deposit accounts with CBR decreased by 0,08trln rubles last week compared to previous week. The average total liquidity balance per day decreased to 1719bln rubles compared to 1730bln rubles in previous week.
GOLD AND FOREIGN CURRENCY RESERVES:
The CBR reported that Russia’s gold and foreign currency reserves reached $406,5bln as of June 08, 2007, stepping up by $2,9bln or 0,72% from their previous level. Reserves have been climbing for FIFTEEN weeks straight, up $95,4bln or 30,67% within this period, pushed by large amount of dollars the CBR has been purchasing on the domestic currency market. 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 $14.4-25.5bln in 2010. However, since January 1, 2007, the reserves have already expanded by $103,5bln or 34,16%.
Meanwhile, the growth rate of gold and forex reserves slightly decelerated for the latest two weeks compared to previous several consecutive weeks.
US economy showed some positive signs. The dollar could be a bit stronger at the beginning of this summer. Treasuries market was on focus for the last two weeks. Thursday of the previous week was the worst day on world’s debt markets since the spring of 2004. Per one day yield of UST10 rose by 18bps from 4.97% to 5.15% and on Friday it tested highs at 5,25%. UST10 showed 5,29% yield last week but started to slid down by Friday and closed the week at 5,17%. Most affected by sales from US mortgage agencies were “long papers†which are traditionally used for hedging. Many people associate the fact that yield is still above 5,10% because of new mortgage agencies’ sales.
The yield Russia30 rose by almost 1% last week. The yield of Russia10 dropped by almost incredible 10% last week.
Last week the market of Russian corporate bonds was very volatile, which is not surprising after latest “major moveâ€, and buyers obviously dominated last week.
The growth rates of Russian corporate bond market and corporate Eurobond market increased considerably in May 2007 compared to April
Russian FX Market
RUSSIA’s FX OUTLOOK
USD/RUR:
The pair was traded in the band of 25,98–26,06 and increased by 0,11% last week. Trade volume on USD/RUB lay in a band of $2,3-3,5bln on the Russian currency market. The CBR regularly purchases large amounts of USD on the Russian currency market for a long time already, which leads to the considerable increase of Russia’s gold and foreign currency reserves. Thus, a high trade volume is not surprising any more. Still trade volume decreased slightly for the couple of latest weeks. Last week dollar crosses a psychological level of 26RUR.
Bush’s Administration downgraded the forecast for US GDP growth for 2007 from 2,9% to 2,3%, due to the low US economy performance in Q1 2007. Earlier IMF decreased the forecast of US GDP for 2007 from 2,9% to 2,2%. The IMF also said the Euro zone economy is moving from “recovery” to “upswing,” with the fundamentals in place for solid growth. It projected euro area GDP growth of 2.5%.
Sources: RTS, Reuters
Russian Stock Market
MARKET PERFORMANCE:
Last week was short due to holidays in Russia. RTS rose by 2,15% last week. Index rose from Wednesday to Friday from 1806 to 1883. Almost all market sectors rose together with RTS last week. Oil&Gas, Telecom, Metal&Mining, and Industrial rose by 5,22%, 3,64%, 5,19%, and 2,90% respectively. Only Retail sector dropped by 1,31% when all other sectors rose. Last week September future on RTS tagged the index and rose as well. SEP future closed the week at 1903,55 (+4,03%). Future closed the week above the index which is a positive signal for RTS.
MICEX and MICEX COMP indices closed the week at 3271,69 (rose by 5,32%) and 1672,29 (rose by 5,33%) respectively. 8
Last week oil prices climbed up: Brent, Urals, and WTI rose by 2,54%, 1,10%, and 5,03% respectively last week. Stock prices of Russian oil companies rallied up at last by more than 5%.
FINANCIALS:
Comstar - UTS (net profit climbed by 12% to $43.7mln in Q1 2007 compared to the same period a year earlier).
ISSUES, ACQUISITIONS & INTENTIONS:
The rapid increase in Rostelecom’s preferred shares may be attributed to speculative media reports about Svyazinvest’s restructuring. The government will not benefit from Svyazinvest’s restructuring by means of a merger with Rostelecom, as shares of the latter are significantly overpriced. IT and Communications Minister Leonid Reyman welcomed the possibility of Svyazinvest consolidating with Rostelecom. Comstar-UTS’s part would be cut back from 25 percent plus one share to 18%, which would be worth more than the current 25%.
LUKoil has used the $1bn it raised in a debut Eurobond issue on June 7, 2007 to refinance a significant part of its $1.9bn syndicated loan facility secured in December 2005.
DEALS:
The Russian pipeline giant Transneft considers to sign a deal with Sberbank on the extension of a loan to finance the construction of the Eastern Siberia - Pacific Ocean (ESPO) oil pipeline.
Gazprom is not looking into the possibility to purchase assets of the Russian oil company RussNeft.
Recovery week for the Russian stock market: RTS rose by 1,63%, MICEX rose by more than 5%, Russian oil stocks rose by 5,22%, SEP future on RTS rose by 4,03% and closed the week above RTSI.
US Stock market, Oil Prices, World’s Indices
DOW:
DOW was very volatile last week. On Monday DOW unsuccessfully tried to continue previous Friday’s growth. On Tuesday it fell by 100 points. Starting from Wednesday to Friday DOW rallied up by 400 points, returned back to an upward trend and almost reached its high on June 1, 2007. The high of the last week is 13688. The DOW closed the week at 13643. TIC report showed a considerable increase in foreign purchases of US securities.
US ECONOMIC DATA PUBLISHED:
Federal budget May -67,7bln vs. April 177,1bln.Import prices May 0,9% vs. 1,3% April. Retail sales excluding auto May 1,3% vs. 0,0% April. Retail sales May 1,4% vs. -0,2% April. Export prices May 0,1% vs. 0,3% April. Business inventories April 0,4% vs. 0,1% March. PPI May Y/Y 4,1% vs. 3,2%. PPI May 0,9% vs. 0,7% April.
Jobless claims (week to 09.06) 311K vs. 309K. PPI excluding food and energy May Y/Y 1,6% vs. April. PPI excluding food and energy May 0,2% vs. 0,0%. Redbook sales for Jun 9: somewhat mixed.
NY Fed Empire State manufacturing index May 25,8 vs. 8,0 April. CPI excluding food and energy May Y/Y 2,2% vs. 2,3%. CPI excluding food and energy (May) 0,1% vs. 0,2%.CPI May Y/Y 2,7% vs. 2,6%. CPI May 0,7% vs. 0,4%. Current account Q1 -192,6bln vs. -187,9bln. TICS long-term April +84,1bln vs. +51,2bln March. TICS April +111,8bln vs. +30,1bln March. Capacity utilization May 81,3 vs. 81,5 April. Industrial production May 0,0% vs. 0,4%. Michigan sentiment index June preliminary 83,7 vs. 88,3 May.
HIGHLIGHTS FROM LAST WEEK’S SPEECHES:
ECB TRICHET: (1) Employment levels are still not acceptable. (2) Repeated that monetary policy is still accommodative and will do whatever necessary on rates. (3) Seeing some slowdown in rate of loans for home purchase. (4) Never used the word “pause” when asked if ECB would pause. ECB GARGANAS: Hints further policy tightening needed. Inflation risks clearly on the upside. FED: Estimated inflation target is 1.8%. Inflation has been trending lower.
Dallas Fed’s Fisher: Fed’s focus does not change with bond market moves. Fed can keep inflation down. ECB Quaden: ECB has not said tightening cycle is over or that a rate hike is needed. ECB action in H2 will be data dependent.
OIL PRICES:
Iran oil minister reported saying commercial oil inventories are at a high level and the reason for high prices is not due to stock levels. WTI Nymex crude oil reversed earlier losses and was traded higher following release of US weekly oil inventory data, which showed gasoline supplies rising much less than expected.
U.S. commercial crude oil inventories inched higher by 0.1 million barrels compared to the previous week to 342.4 million barrels
OPEC: OPEC does not plan to increase the supply of oil. If prices will continue to rise then the correction of supplies will be done, but for today OPEC needs to do nothing. According to OPEC the rise of oil prices is due to geopolitical factors and not due to low supply to the market. It is necessary to remember that OPEC reduced supplies to 2-year lows, which puts additional pressure on oil prices. 10
PRICES: Brent, Urals, and WTI rose by 2,54%, 1,10%, and 5,03% respectively last week.
WORLD INDICES
Last week all main world’s indices rose considerably. Winners of the week were European indices DAX (+5,80%), CAC40 (+3,77%), EuroNext100 (+3,59%), FTSE100 (+3,49%), and SWISS MI (+2,68%).
This Week’s Agenda
June 19
USA: ICSC-UBS Store Sales
USA: Housing Starts May
USA: Redbook
USA: State Street Investor Confidence Index
ISSUES: TransCreditBank (1) to sell RUB 3 bio of domestic bonds with a 3-years maturity
ISSUES: TransCreditBank (2) to sell RUB 3 bio of domestic bonds with a 5-years maturity and a put option from par at the end of the 2-year
ISSUES: Proton-Finance to sell RUB 1 bio of domestic bonds with a 5-years maturity and a put option from par in the middle of the 2-year
June 20
USA: Bank Reserve Settlement
USA: MBA Purchase Applications
USA: EIA Petroleum Status Report 06/15
ISSUES: Credit Bank of Moscow to sell RUB 2 bio of domestic bonds with a 3-years maturity and a put option from par in the middle of the 2-year
ISSUES: TekhnoNIKOL-Finance to sell RUB 3 bio of domestic bonds with a 5-years maturity and a put option from par in the middle of the 3-year
ISSUES: Moscommertsbank to sell RUB 5 bio of domestic bonds with a 6-years maturity and a put option from par at the end of the 2-year
June 21
USA: Jobless Claims 06/16
USA: Leading Indicators May
USA: EIA Natural Gas Report 06/15
USA: Philadelphia Fed Survey June
ISSUES: Kosmos-Finance to sell RUB 2 bio of domestic bonds with a 4-years maturity and a put option from par at the end of the 1-year
ISSUES: SKB-Bank to sell RUB 1 bio of domestic bonds with a 3-years maturity and a put option from par at the end of the 1-year
ISSUES: Sedmoy Continent to sell RUB 7 bio of domestic bonds with a 5-years maturity and a put option from par at the end of the 3-year
ISSUES: Russian Sea to sell RUB 2 bio of domestic bonds with a 5-years maturity and a put option from par at the end of the 1-year
ISSUES: TGK-10 to sell RUB 3 bio of domestic bonds with a 3-years maturity and a put option from par at the end of the 2-year
June 22
ISSUES: EUROCOMMERCE to sell RUB 3 bio of domestic bonds with a 3-years maturity and a put option from par at the end of the 2-year
Sources:
The Central Bank of Russia, Reuters, Cbonds, Ministry of Finance
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