Russian stock market grows the third week, and the ruble is strengthening

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Tensions in trade and concerns over sanctions eased: for the third straight week the Russian stock market is rising and the ruble is strengthening amid easing concerns related to sanctions and the growth of oil prices above $80 per barrel. In ruble terms, a barrel of oil now costs a record 5 500 RUB, triggering long-awaited growth of incomes of the Russian budget and becoming a kind of shield against sanctions. As reported by Bloomberg, the U.S. Congress is unlikely to adopt new sanctions against Russia, including proposals that would affect Russian sovereign debt and energy-related projects, before the November mid-term elections in the United States.
The U.S. Congress has gone on vacation and will be back only in early November that will bring further support to the Russian stock market and ruble this week. Shopping stress is likely to recede into the background this week, as financial markets in China are closed for a long weekend this week. When it was published in output price index of China’s manufacturing industry in September at the level of 50.8 (estimated at 51.2) disappointing emerging markets, the weakest pace in 16 months.
Foreign Minister of Britain, Boris Johnson spoke about Brexit, resuming his statement, the contradictions within the ruling of the conservative party at the ongoing annual conference of the Conservative party in the UK. The President of Serbia Aleksandar Vucic begins his week-long visit to Russia during which he will meet with Vladimir Putin. On Thursday the Russian President at the invitation of Indian Prime Minister Narendra modi will participate in the annual Russian-Indian summit. The Central theme of this event will be sanctioned by USA against Iran and a possible deal to supply Russian complex With-400.
It should be noted that the EU, Russia, China and Iran agreed to establish a special mechanism to calculate with Tehran (SPV), independent from a financial point of view, the sovereign channel, which will allow you to circumvent US sanctions. We do not expect any major developments in EM, because the Chinese market is closed this week, although the markets will wait for the CPI of Turkey. The increase in the price of oil over $80/barrel will continue to support the shares of oil companies (ROSN, LKOH, NVTK, GAZP). Sberbank should stabilize at the level of RUB 200+/share this week. We do not exclude profit fixing in the Russian share market at the beginning of the week after the release of weak China PMI
Oil will continue to grow, the rouble can test the pressure. At the end of this week will be published data on inflation for September. According to our forecasts, it will be 0.1% m/m and 3.3% y/y. According to analysts of Alfa-Bank, this week will show just how really strengthened the ruble, as it ended the period of tax payments. Special attention this week and deserve the price of oil in connection with the forthcoming entry into force of sanctions against Iran; price pressure may intensify after last week’s meeting of OPEC+.
Moreover, in the US the average price for unleaded gasoline in the U.S. last week rose to $2 875 per gallon, according to AAA. The price of gasoline of standard quality rose 1.4% last month. In the metals market, gold prices dropped to $1 187/oz and the palladium price rose to $1 088/oz, the spread has narrowed to just $100/ounce, which has led to speculation that the palladium price for the first time in 16 years may exceed the price of gold. This scenario is very favorable for Norilsk Nickel, the world’s largest producer of palladium.
On the other hand, Barrick Gold announced the acquisition of Randgold for $6.1 billion last week, becoming the world’s largest gold producer and potentially signalling that the gold price almost reached the bottom. Emerging markets will again be in the spotlight on Wednesday when Turkey will be published CPI for September and the expected surge in inflation is likely to put more pressure on the Lira. Today the managing Director of the International monetary Fund Christine Lagarde will present in Washington D.C. key themes to be discussed at the annual meeting of the IMF and the world Bank.
Russian capital markets are showing signs of recovery. Russian oil and gas company last week grew (the MICEX index oil and gas increased by 4.0% n/n) on the news that Royal Dutch Shell and Total, plans to increase its presence in the Russian market. According to Reuters, Royal Dutch Shell is in advanced talks to buy a stake in the Tazovsky oil field of Gazprom Neft.
Total has increased its stake in NOVATEK to 19.4% in a deal worth $6.8 billion, bringing the total investment of the French company in Russia to $9.6 billion That could encourage other global companies to reconsider their attitude towards Russia. In addition, the capital markets begin to show signs of recovery – a large number of players returned to the idea of an IPO or listing on Western exchanges, including SIBUR and MegaFon.
Today will be an Extraordinary meeting of shareholders of the Company. Sberbank will present the results of the company for 9М18. Of foreign companies this week, will report to PepsiCo, Japanese food Kewpie product retailer, Canadian miner Novagold, Tesco, and Costco.
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The material is provided,
Analysts of JSC “Alfa-Bank”