Russian Markets Research June 18-24, 2007
The Central Bank of Russia decreased its discount rate to 10% on June 19, 2007, down from the previous level of 10.5% per annum.
Last week USD/RUB again slightly fell below a psychological level of 26RUR. The dollar was trading at RUR 25.8880 on MICEX last Friday.
The Euro started recovering boosting bullish hopes again. Last week EUR/USD grew by 0,6% and did it gradually by the end of the week, which gives the ground to suppose that the growth could continue even in short-term perspective.
Russian stock market looks for solid support. RTS rose by 0,68%, MICEX rose by only than 0,2%.
The DOW was again very volatile last week showing rallies up and down from 150 to 400 points. The DOW closed the week at 13385.
Brent, Urals, and WTI rose by 1,19%, 0,60%, and 1,19% respectively last week.
Last week all main world indices fell considerably, except for Japanese indices which showed growth.
Russian Economic Update
Bank of Russia cut its discount rate
The Central Bank of Russia decreased its discount rate to 10% on June 19 2007, down from the previous level of 10.5% per annum. The previous time the Bank of Russia cut the rate on January 29, 2007, from 11% to 10.5%.
Russia’s industrial production went up by 6.7%
Russia’s industrial production went up by 6.7% in May 2007 and by 7.4% in January-May 2007. Industrial production increased by 0.9% compared to April 2007.
Russia’s foreign trade went up 18.5% percent
According to Rosstat, Russia’s foreign trade went up by 18.5% to $158.6bln in January-April 2007 compared to the same period a year earlier. Exports increased by 8.4% to $99.1bln and imports climbed by 40.4% to $59.5bln. Trade surplus amounted to $39.6bln compared to $49bln in January-April 2006.
Oil output climbed 3.7% in May 2007
According to Rosstat, Russia’s production of oil and gas condensate grew by 3.2% to 203mln tonnes in January-May 2007 compared to the same period a year earlier. Oil output climbed by 3.7% in May 2007. The Russian Industry and Energy Ministry projects that production of oil will amount to nearly 490mln tonnes in 2007, which is 2.08 higher than in 2006.
Fixed investment in Russia surged by 23.1% to USD17.96bln in May 2007
According to Rosstat, fixed investment in Russia surged by 23.1% to USD17.96bln in May 2007 compared to the same month a year earlier. Investment in Russia grew by 20.8% in January-May 2007 compared to the same period in 2006.
Natural gas production decreased by 1.8% in May 2007
According to Rosstat, natural gas production decreased by 1.8% to 53.5bln cubic meters in Russia in May 2007 compared to the same month a year earlier. Output fell by 4.7% compared to April 2007.
Russian officials again said that the inflation for 2007 will be within planned 8%. According to the Finance Minister Alexei Kudrin, Russia’s inflation in June 2007 may exceed that in June 2006, however, he added that the annual inflation would not exceed the forecast for 2007. The World bank does not share this opinion. According to John Litwack, World Bank Chief Economist for Russia, inflation could rise to 9-10%, which will not surprise.
Rumors
Trends
There will, probably, be applied changes in taxation for unit investment funds to encourage longer-term investments.
According to MTS forecast, Russia’s mobile services market will grow 2.3 times to $34.1bln by 2012 compared to 2006.
Russia will simplify import licensing procedures.
According to the Finance Minister Alexei Kudrin, the oil price may amount to $61 per barrel in 2007.
Russia will, probably, decrease custom duties to import of mobile phones, digital cameras, and primary aluminum.
In nearest several years Moscow could join top 5 world economies and become fifth or sixth world financial center.
According to Mineconomsvyaz, the volume of Russian export in IT and communications will grow to $5,8bln by 2010.
World
Atomstroyexport and Vietnam talks on joint project to construct the first nuclear power station in republic.
Gold reserves in State’s reserve of the Russian Federation decreased by 0,27%.
According to The Wall Street Journal, Pearson PLC (issuing The Financial Times) is looking for partners to buy Dow Jones&Co. Rupert Merdok, the owner of News Corp., also wants to buy Dow Jones&Co for $5bln.
Russian bankers hope for further growth of the domestic lending market, especially in terms of mortgages, car loans and credit cards. Before the end of this year Russia’s retail lending market will grow by $25 billion, rising over $110 billion.
Following Russia’s accession to WTO
The Economy Ministry reported earlier that Russia’s entry into the WTO could be completed by the end of 2007. Russia held talks with 56 WTO countries, securing their support. Bilateral agreements were not signed yet with Cambodia and Guatemala. Problems remain also with Georgia and Poland.
Regulation
FCSM gave first termless licenses of professional participants of the stock market. Before this, companies could get licenses for the 3 years and only then get a termless license.
A new state tanker corporation on the basis of the Russian shipping company Sovcomflot and Novorossiysk Shipping Company (Novoship) will be created in Russia. According to the merger plan, the new company would have nearly $5bn in assets and become a leading global tanker corporation.
Sources: The Central Bank of Russia, Reuters, Cbonds, Ministry of Finance
Russian Money Market
Last week O/N rate lay in the band of 3,39–4,24%, for one week rubles could be found at 3,75-4,89%, and for one month at 3,47-4,84%. O/N rate increased to 4,24% by Friday last week.
All tree mentioned rates increased last week compared to the previous week.
Liquidity decreased on the money market last week, partially due to Value Added Tax payments on June 20.
Balances on C/A slightly increased from 459,0bln rubles on Monday to 463,8bln rubles on Friday. Bank deposits with the CBR decreased from 1197,2bln rubles on Monday to 1111,1bln rubles on Friday. 3
The total flow of balance on C/A and deposit accounts with CBR decreased by 0,46trln rubles last week compared to previous week. The average total liquidity balance per day decreased to 1628bln rubles compared to 1719bln rubles in previous week.
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GOLD AND FOREIGN CURRENCY RESERVES:
The CBR reported that Russia’s gold and foreign currency reserves amounted to $405,0bln as of June 15, 2007, stepping down by $1,5bln or 0,37% from their previous level after Reserves were climbing for FIFTEEN weeks straight, up $95,4bln or 30,67% within this period, pushed by large amount of dollars the CBR was 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 $102,0bln or 33,6%.
UST10 does not hurry to break downward trend. Still some small consolidation started. Yield of UST10 was in the band of 5,09-5,19% last week. Short Treasuries showed yield decrease of 2,17%. EMBI+Russia rose by 3 bps to 98 last week.
Among Emerging markets Turkey 34 benchmark looks almost flat compared to volatile Brazil 40. Yields of both rose by 0,27% and 0,83% respectively last week.
The growth rates of Russian corporate bond market and corporate Eurobond market increased considerably in May 2007 compared to April 2007.
FUNDAMENTALS:
US Q1 GDP was revised down from 1,3% to 0,6%. At the same time we boosted our US Q2 GDP estimate to +3.2% from +2.6%. The housing market is still dragging the US economy down. We will, probably, see another decline in US housing market. Builders made their disappointment with spring sales. Rising gasoline prices can also hurt the US economy. The US labor market remains tight, and the economy appears to be accelerating, while energy and food prices are pushing overall inflation rates higher. The core inflation has decelerated but the Fed needs additional evidence of weak economic growth to consider a change in monetary policy. The US economy waits for new fundamentals. Any fresh weakness in the US data will be USD negative.
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%.
Russian Stock Market
MARKET PERFORMANCE: Trade volume on RTS fell from Monday to Thursday and rose on Friday. RTSI rose by 0,68% last week. Metal&Mining and Retail sectors showed considerable increase by 3,70% and 4,64% respectively last week. Telecom rose by only 0,69%. Oil&Gas and Industrial sectors slightly fell by 0,27% and 0,36% respectively. September future on RTS was traded above RTSI for the whole week. And closed the week at 1913,2 (+0,51%).
MICEX and MICEX COMP indices closed the week at 3260,28 (- 0,35%) and 1675,65 (+ 0,20%) respectively.
Last week oil prices climbed up: Brent, Urals, and WTI rose by 1,19%, 0,60%, and 1,19% respectively last week. Stock prices of Russian oil companies slightly fell by 0,27%.
FINANCIALS: SIBUR Holding (net profit almost doubled to USD822mln in 2006 compared to a year earlier), Rosneft (net profit dropped by 24.94% to $602mln in Q1 of 2007), Magnitogorsk Iron and Steel Works (MMK) (net profit surged by 41.1% to $350mln in Q1 of 2007 compared to the same period a year earlier), Polymetal (net profit surged by 32% to $59.2mln in 2006 compared to a year earlier), RTS Stock Exchange (net profit more than doubled and amounted to USD2.65mln in 2006), Novolipetsk Steel (NLMK) (net profit dropped by 16% to $456.6mlm in Q1 of 2007 compared to the same period a year earlier), CenterTelecom (net profit amounted to USD71mln in 2006 compared to a net loss of USD55mln a year earlier), Uralsvyazinform (net profit dropped by 56.5% to USD31.91mln in 2006 compared to a year earlier), TGK-1 (net profit went down by 5.9% to USD62mln). 8
ISSUES, ACQUISITIONS & INTENTIONS: Rosneft is not planning to make a secondary public offering. VTB looks into selling stakes in ALROSA and European Aeronautic Defense and Space Company (EADS). Sberbank is planning to offer shares on the London Stock Exchange (LSE) soon. TGK-4 shareholders discuss additional share issue. The State’s stake in Rosgosstrakh may be lowered. Analysts optimistic about Transneft’s Eurobonds issue. OGK-1 shareholders decide on share issue. RAO UES gives go-ahead for OGK-4 sale. According to Gennady Melikyan, First Deputy Chairman of the Russian Central Bank, at least three privately owned Russian banks will float shares as part of initial public offerings by the end of 2007, though he declined to reveal the names of these banks. The central banker stated that each bank would float around 25-30% of their shares, stressing that they expected to raise considerable proceeds. Melikyan revealed that these three banks were among Russia’s 50 largest banks in terms of capital, and two of them were in the top 30. The government is not planning to sell its stake in Inter RAO UES after it is divested from RAO UES. Gazprombank boosted its stake in Mosenergo’s share capital from 5.08% to 10.09 %.
DEALS: Gazprom’s management believes that natural gas produced by the oil and gas project Sakhalin-1 should be used only in Russia. Aeroflot will, probably, refuse to buy Italian Alitalia, because Italia’s government does not want to develop its company but only wants to gain maximum return from sale. LionOre paid compentation of $327mln to Xstrata for breaching the merging agreement, because Norilsky Nickel actually “won the auctionâ€. Aeroflot made a deal with Rolls-Royce to equip 10 airplanes A-330 with engines. Aeroflot will purchase 22 jets A350-XWB from Airbus. Ural Airlines looks to acquire 5 Airbus A320 liners.
Russian stock market looks for solid support: RTS rose by 0,68%, MICEX rose by only than 0,2%, Russian oil stocks slightly fell by 0,27%, SEP future on RTS rose by 0,51% and closed the week above RTSI.
US Stock market, Oil Prices, World’s Indices
DOW:
DOW was very volatile last week. On Monday and Tuesday DOW rose by almost 100 points but was not able to even touch previous highs. On Wednesday it fell almost 250 points, on Thursday gained 150 points back, on Friday fell by almost 180 points again. The high of the last week is 13672. The DOW closed the week at 13385.
US ECONOMIC DATA PUBLISHED:
Last week was poor in terms of new US economic data.
Building permits May 1.501mln vs. 1.457mln April.
Housing starts May 1.474mln vs. 1.506 April.
Jobless claims (week to 16.06) 324К vs. 314K.
Leading indicators May 0.3% vs. -0.3% April.
Philadelphia Fed index June 18.0 vs. 4.2 May.
HIGHLIGHTS FROM LAST WEEK’S SPEECHES:
We again heard from ECB speakers that monetary policy is still accommodative and that ECBwill do whatever necessary on rates. They emphasized also that inflation risks in Eurozone are clearly on the upside.
Dallas Fed’s Fisher: Strong world growth may be raising inflation risks. Sees some encouragement in inflation data but “we are not there yetâ€.
OIL PRICES:
World oil prices were at high levels for the whole last week. They only fell slightly in the middle of the week.
US commercial oil inventories jumped by 6.9mln barrels to 349.3mln barrels last week.
Crude oil fell by around 70 cents following release of US weekly oil inventory data, which showed crude oil supplies rising. 10
PRICES: Brent, Urals, and WTI rose by 1,19%, 0,60%, and 1,19% respectively last week.
WORLD INDICES
Last week all main world indices fell considerably, except for Japanese indices which showed growth: Nikkei225 (+1,21%), and Topix (+0,28) Losers of the week were FTSE100 (-2,45%), SWISS (-2,44%), DJI (-2,05%), S&P500 (-1,98%).
This Week’s Agenda
June 25
USA: Existing Home Sales May
ISSUES: Sibirskiy Bereg-Finance to sell RUB 1,5 bio of domestic bonds with a 5-years maturity and a put option from par at the end of the 1-year.
June 26
USA: ICSC-UBS Store Sales
USA: Redbook
USA: Consumer Confidence June
USA: New Home Sales May
ISSUES: D&POS 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: Mosoblgaz-Finance to sell RUB 3 bio of domestic bonds with a 5-years maturity.
June 27
USA: MBA Purchase Applications
USA: Durable Goods Orders May
USA: EIA Petroleum Status Report 06/22
USA: FOMC Meeting Begins
ISSUES: Alliance Finance to sell RUB 3 bio of domestic bonds with a 5-years maturity and a put option from par at the end of the 3-year.
ISSUES: Gazenergoset to sell RUB 1,5 bio of domestic bonds with a 5-years maturity.
ISSUES: Avtomir-Finance 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: Samara region to sell RUB 5 bio of domestic bonds with a 5-years maturity.
June 28
USA: GDP (final) Q1
USA: Jobless Claims 06/23
USA: Help Wanted Index May
USA: EIA Natural Gas Report 06/22
USA: FOMC Announcement
USA: Farm Prices
RUSSIA: Gold&forex reserves USD for June 25
June 29
USA: Personal Income and Outlays May
USA: NAPM-Chicago June
USA: Construction Spending May
USA: Consumer Sentiment June
RUSSIA:Current account USD (Q1)
RUSSIA:Money supply Narrow Def. RUB for June 25
RUSSIA:Money supply Narrow Def. WoW for June 25
RUSSIA:Money supply M2 MoM% May
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