FINANCIAL ANALYSIS
by Chris Weafer
“Schopenhauer was right. Life without pain has no meaning. Gentlemen, I am here to give your lives… meaning.”
Dr Lindstrom (Red Dwarf)
Down w-o-w despite positive global dynamics. Russian equity indexes drifted lower last week in contrast with modest gains for the S&P 500, Chinese equities and the Brent price.
Off the table until reforms, forecasts bear fruit. Russia will remain a marginal theme in global markets until there is more visible progress in reforms and investors are more convinced that forecast economic growth and earnings can be delivered.
Russian equities are set to follow this week’s global events. This week, the equity indexes are more likely to play catch up if global markets climb further, while a weaker trend in the S&P 500 could push Russian equities lower.
Brent up, evoking caution. The Brent price breached the technical target of $118/bbl we highlighted last week. Saudi Arabia is expected to warn against a higher price and promise to add supply to bring the price back toward $110/bbl.
Quiet in emerging markets. Activity and news flow in emerging markets is expected to remain low this week due to the long Chinese New Year holiday and Carnival in Brazil.
US politics, US and EU macro in focus. The main global market events this week will be the State of the Union address in Washington, US retail sales and industrial production updates and flash GDP reports in the EU.
US, Spanish and Italian debt events are the main risk. The main risks to the fragile net-positive global market sentiment are that US debt and budget talks may break down or that Spain and/or Italy may move into crisis. Spain’s 10y Sovereign yield climbed to 5.52%, while the Italian equivalent reached 4.63% last week.
Tuesday’s Central Bank meeting the main domestic story. Benchmark rates are not expected to change, but the bank is again expected to warn about inflation dangers.
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