Macroeconomic conjuncture: Correction gives an opportunities to buy
10 May 2016
In April, the American exchange indices showed good adding having totally won back the drop early this year and having upgraded many-months’ highs. Rapid recovery of the oil quotes and the easy position of the monetary authorities of developed stated formed the major drivers of the increased appetite of risk. S&P 500 index has added 13% of cost from the lowest levels of the year despite the relatively weak corporate reports of the companies.
Panic indicated at the Chinese exchange market early this year has actually faded. The major exchange indices and the national currency rates have stabilized at the expense of the timely intervention of the monetary authorities. Macroeconomic results for April turned out to be positive in nearly all of the leading segments of the economy, providing hope to the investors and global regulators regarding the further recovery processes in the state.
Policy of the European Central Bank (ECB) still is an important subject at the global grounds. At the session in April, ECB has kept the interest rate on credits (0%) and deposits (-0.4%) unchanged. The volume of the assets bought back within the frames of the QE has been confirmed in the volume of 80 bn EUR. Generally, the position of the regulator was similar to the one that we indicated in the press release after the session in March; therefore, we saw no extra hints of any additional stimulation to be introduced.
For 1Q 2016, the Russian economy looks a lot better if compared to the lowest levels of the previous year. The real segment of the economy getting along with the new conditions has been provided by stabilization of the ruble’ exchange rate and the oil prices. Economic business society got a more optimistic view over the prospects of the state’ development, considering the fact that the most pessimistic forecasts on the further situation of budget and bank systems have not been justified. However, the macroeconomic estimates in Russia indicate an uncertain situation and the chances of exit from the stagnation trend are still low.
Despite the failed talks on oil production freezing in Doha, by the end of April the oil quotes have not only won back the entire drop after the results of the talks had been announced, but set the new highs: the price of Brent as of the end of the month has formed 48 USD per barrel.
May is expected to be calm from the viewpoint of the global macroeconomic news – the most interesting events are scheduled in June (another session of OPEC, referendum on Brexit, session of Fed). The correction that started at the Russian market as May began might progress down to the levels of 1,800-1,850 points at MICEX. Despite the high probability of the correction to be continued, the number of notes is interesting to be bought at the current levels already. Revision of the MSCI index might provide for interesting growth drivers.
April ended with another session of the Bank of Russia at the domestic market. The regulator has expectedly kept the key rate unchanged at the level of 11% annually, having justified its decision by four factors. First came the fact that the Bank of Russia did indicated the further reduction of inflation, however, same as before, the regulator has outlined the risks of the given trend being unstable, still expecting the possible acceleration of the price growth in the middle of the current year. However, the CBR still stocks to the forecast of the 4% of inflation as of the end of the year 2017. Later on, the Bank of Russia has described the situation in the economy positively, having indicated it reaching the phase of the “recovery growth” (in the second half of the 2016 – early 2017. Additionally note that the CBR has indicated the reduction of rates in the economy even if the key rate remains unchanged (including, at the expense of the budget liquidity entering the system). Finally, the Bank of Russia indicated preservation of the increase inflation risks provided also by the problems of misbalanced budget and uncertainty of the budget policy.
At the currency market, ruble tried for 65 RUB vs dollar several time in April, however, the Russian currency seems to require a clear motion of the Brent oil towards the levels of 50 USD per barrel firmly to do so. We do not expect that to happen in the nearest future. Moreover, for May the oil quotes will be suffering mild pressure in May. Under given conditions, the American currency will have a great chance of staying at the upper border of the 65-67 RUB range. At the meantime, even in case the oil prices reduce larger (towards 40 USD per barrel), the positions of ruble will be initially balanced by the currency’ inflow from the Reserve Fund within the frames of refunding the deficit of the state’ budget.
The Russian debt market closed the month showing growth at the expense of the ruble liquidity surplus in the bank system and strengthening o the national currency. Besides, the easy position of the global regulators formed a driver of inflow of the speculative monetary assets into the EM markets. Results of the Federal loan’ bonds turned out to be modest in April unlike the ones for March, however, the domestic notes did not fall behind the general positive dynamics of EM segment. Yield of the 10-year OFZ in the local currency formed about 3% vs 2% for the previous month. At the meantime, the yield in dollar terms formed about 7% vs the 11% for the previous month. According to our opinion, the results YTD might be admitted as positive as the investors have earned 13-17% from the ruble bonds.