Russia: Other Points of View

DEAUVILLE BLUSTER ... AND US GDP UPDATE

FINANCIAL ANALYSIS

By Chris Weafer

Equities and the ruble should open with greater support this morning as commodity prices rally and Asia's equity markets move higher. Although still very nervous, investors view recent weakness as an over-reaction. The oil producers along with stocks in the metals and mining sectors should lead the expected bounce at the opening. In particular, the better copper and nickel prices should help Norilsk Nickel and a further gain in the price of silver will help Polymetal to move higher. Whether the morning strength is sustained or not will depend on the reaction to the 2nd reading of US 1st Qtr GDP growth, due out later. The 1st reading showed growth of +1.8% and the expectation is that the 2nd reading will see this rise to 2.2%. The weekly jobless report will also be published and investor sentiment is always sensitive to this indicator. As always, how the US market trades will affect how Moscow’s bourses close.
 
The ruble should have a better day today because of the lag effect of yesterday’s better oil price and an improved risk appetite in global markets. The ruble should see better gains against the dollar than the euro as the dollar is weakening against the euro again this morning. The current rate is $1.4166, having closed at $1.4087 yesterday.

ISLAM, ISLAMISM AND POLITICS IN EURASIA REPORT NO.41, JUNE MAY 2011

By Gordon M Hahn

CONTENTS:

RUSSIA

• CAUCASUS EMIRATE FINALLY PLACED ON U.S. STATE DEPARTMENT LIST OF INTERNATIONAL TERRORIST ORGANIZATIONS
• DAGESTAN VILAIYAT RENEWS DECLARES LOYALTY BAYAT TO CE AMIR UMAROV AND APPOINTS SENIOR NAIB
• CE DAGESTAN VILAIYAT’S MAIN WEBSITE CEASES PUBLICATION AMIDST SCANDAL
• KOSOLAPOV RE-EMERGES AHEAD OF PEAK JIHADI FIGHTING SEASON
• MORE EVIDENCE OF JIHADISM IN ASTRAKHAN
• CHECHNYA NATIVE DOUKAEV INDICTED FOR TERRORISM

To access the full report, please click here  Download KAVKAZJIHAD_MonTREP_IIPER_41_June_2011

RUSSIAN FEDERATION WEEKLY SITREP

by Patrick Armstrong

Rule-of-law. At the St Petersburg Legal Forum Medvedev said: “Over these last years we have made progress in putting in place the foundations on which we can build a rule-of-law state in our country.” I think that’s a fair statement: he’s essentially saying that the beginning has been begun and not pretending that what’s been done is enough or that the job is finished. Police reform, legal changes, dismissals, some trials; that’s not nothing. I find that too much comment on Russia is absolutist: either a reform is 100% successful right now or it’s 100% failure. But, in the real world, it’s all incremental and one should look for small progress. It’s there.

Police reform. Medvedev has signed a decree establishing advisory panels at regional police headquarters. They are to “coordinate issues of public importance concerning the interests of peoples, federal and regional bodies of state power, local self-governments, and public associations”. That’s quite a lot he’s done in this area. Its effectiveness will be revealed in the next few years but again, it’s not nothing.

RUSSIAN THAW CONTINUES

COMMENTARY

by Gordon M. Hahn

More than three years ago to the day I predicted there would be a ‘thaw’ under the tandem and presidency of Dmitrii Medvedev (See Gordon M. Hahn, “Is A Russian ‘Thaw’ Coming?,” Russia: Other Points of View, 18 April 2008). 

Anyone reading ROPV would be aware of just how very much this prediction has panned out and just how false a picture the dinosaur U.S. mainstream media (especially the Washington Post, New York Times, and less so recently the Wall Street Journal are providing.  Readers could be left in the dark and still under the false impression that “Putin’s Russia” is reliving 1937.  Given the anniversary of sorts, I thought I would review some of the most recent examples of the ongoing perestroika and glasnost 2.0.

WE WANTED THINGS TO GET BETTER, BUT THEY ENDED UP THE SAME AS ALWAYS

COMMENTARY

by Gordon M. Hahn

The U.S. mainstream continues to march pretty much in lockstep by diverting readers’ attention from Russian President Dmitrii Medvedev’s increasingly ambitious liberalization agenda. 

Last week, as if on cue, both the New York Times and Washington Post issued articles on the an identical theme – the ‘tussle under the rug’ between Medevedev and his predecessor and Vladimir Putin.  This gives readers the appearance that nothing else happens or matters in Russia but a power struggle between the two of them.   That struggle is confined so far to jockeying between the supporters of Putin and/or Medvedev over who should be the presidential candidate in the March 2012 elections. 

The first story, from the WP’s Kathy Lally of May 7^th, asked: “(I)s (the) Putin-Medvedev rift all part of the game?” (“Awaiting Russian presidential vote, is Putin-Medvedev rift all part of the game?,” Washington Post, 7 May 2011).  It cited only those Russian political scientists who claimed that there was no real competition in Russia and emphasized the supposed similarities between the Russian and Soviet political systems.  The message: (1) the tandem is deliberately fostering the appearance of a rift between them in order to create an image of political competition and (2) nothing has changed under Medvedev.

RUSSIA WEEK: UNRAVELLING LEBOWSKI'S RUG

FINANCIAL ANALYSIS

by Chris Weafer

Investor confidence continues to be undermined by erratic growth signals in major economies and by the threat posed by the still unresolved eurozone sovereign debt issues. Friday’s profit warnings from several big US companies, Fitch’s downgrade of Greek debt and the Bundesbank warning of slower growth in Germany completely undermined the fragile attempt to rally from recent weakness. That news combination sent investors home wondering if the apocalyptic warnings of Judgment Day on Saturday (if you’re reading this, they were wrong again) might even be true. It is very much a case of bracing for even more bad news, staying defensive/liquid and avoiding any risk investments until markets find better support.

The RTS is now down 14% from its early April high. While Friday’s late evening bounce in the price of oil, and the expected successful placing of Yandex shares, may provide some comfort on Monday morning, we could easily see the market decline stretch to a technical bear market fall of 20% in the coming weeks. My opinion remains that this is a familiar enough market-sentiment pattern and, previously, we have seen firmer support established just below minus 20% or, end-June/early-July. Whichever comes first. That’s when I would look to buy and with an emphasis on domestic rather than global beta themes.

To access the full note, with this week’s Stock Watch, diary, weekly funds flow analysis, an update on the BP-Rosneft deal, graphs showing the relationship between the US$ and equities/oil, plus tables showing the best and worst share performance of last week and year to date,  please click here Download Russia_Week_May_23_11.

RUSSIA WEEK: STILL ON A TIGHTROPE

FINANCIAL ANALYSIS

by Chris Weafer

After twelve straight sessions of weakness, during which the RTS fell by 10%, Moscow’s bourses may now see yesterday’s tentative rally extend further. Buyers have returned to commodities and the dollar looks likely to give back some more of its recent gains against the euro. Of course, whether this is just a knee-jerk reaction to recent weakness or a more substantive rally will absolutely depend on global market sentiment rather than domestic factors and until that becomes clearer investors will remain wary. Today’s economic updates in the US (see below) are something of a double-edged sword; if the numbers are good then the equity rally will extend further but the dollar may recover and hold back oil. If the numbers are disappointing then the dollar will weaken further as hopes for additional stimulus will increase. But yesterday’s equity rally will be cut short.

This morning we should see some interest in the oil majors (they missed yesterday’s closing rally) and the banks. The ruble should again push below 28.0 to the dollar as oil holds firm and the dollar tracks lower.

RUSSIAN FEDERATION WEEKLY SITREP

by Patrick Armstrong

Medvedev Press conference. Medvedev gave a large press conference yesterday. He said he would announce “soon” whether he will run again. The inquiry into Sergey Magnitskiy will be concluded “soon”. He several times stressed that no one should stay in power forever (in the context of saying he had replaced half the regional leaders) and that people who do so come to “a rather bad end”. Russia’s political system is still being adjusted (“a forming democracy “) and that it was possible that Federation Council members (and governors) might be directly elected (not, apparently, “soon”). He understood that “local authorities try to varnish everything” when he comes to visit, but said that he also got information from blogs etc which “cut right to the truth”. Relations with NATO were “not that bad” but he reemphasised that Moscow had to be sure that “these strike potentials will not be directed at us”. (Many of course see this and similar statements as threats; they aren’t, they’re conditional warnings: if Russia feels it is threatened – which it doesn’t today – it will take counter steps. A perfectly understandable position and one that any country would take). But, once again, sometimes the level of detail was preposterous. I have noticed this many times in his and Putin’s Q&A sessions: a version of “my roof is leaking Mr President, will you repair it?”. The third question was about parking in Moscow. Medvedev answered the question in some detail but I believe he would have been wiser to say: ask the Mayor, that’s not my job. The Boss – even if there are two of them – cannot do everything.

ISLAM, ISLAMISM AND POLITICS IN EURASIA REPORT NO.40, 15 MAY 2011

By Gordon M Hahn

Monterey Institute of International Studies

CONTENTS:

RUSSIA

• CE AMIR UMAROV APPOINTS NEW VALI AND AMIR FOR DAGESTAN VILAIYAT
• CE DATA ON THE NUMBER OF ITS ATTACKS AND RESULTING CASUALTIES FOR THE FIRST FOUR MONTHS OF 2011
• FOURTH SUICIDE BOMBING OF 2011, THIRD IN DAGESTAN
• CE WEBSITES ON OBL’S DEATH
• DAGESTAN VILAIYAT CELL UNCOVERED IN CZECH REPUBLIC
• AQ’S INSPIRE TRANSLATED TO RUSSIAN IN FULL AND POSTED ON JOINT CE/AQ-AFFILIATED WEBSITE
• KURDISH TURK AND ALLEGED AL QA`IDA OPERATIVE KILLED IN CHECHNYA
• TALIBAN AND GLOBAL JIHADIS STEPPING UP EFFORTS IN RUSSIA?
• UZBEKISTAN MAN ARRESTED FOR FINANCING CAUCASUS MUJAHEDIN

AZERBAIJHAN

• AZERBAIJAN PROTEST AGAINST SCHOOL HIJAB BAN PUT DOWN BY POLICE

CENTRAL ASIA by Yelena Altman (unless otherwise indicated)

• WANTED TURK DETAINED IN KYRGYZSTAN
• BOMB FOUND IN SCHOOL IN BISHKEK, KYRGYZSTAN
• ISLAMIC MOVEMENT OF KYRGYZSTAN CREATED
• TRESPASSER DETAINED ON UZBEK BORDER
• ESCAPED FUGITIVES SENTENCED TO LIFE IN PRISON
• IMU VIDEOS “THE MUJAHID #2” AND “USAMA BIN LADEN”
• UZBEKISTAN PRESIDENT KARIMOV ACCUSES WEST OF INSTIGATING TERRORISM

To access the full report, please click here  Download KAVKAZJIHAD_MonTREP_IIPER_40_May_2011

RUSSIA WEEK: PREVAILING NERVOUSNESS

FINANCIAL ANALYSIS

By Chris Weafer

The dominant sentiment in all global markets is one of nervousness. Nervousness that Europe’s debt problems may worsen and threaten the pace of economic recovery in the region; nervousness that China’s efforts to contain inflation growth may slow demand for imported materials; nervousness that events across the Middle East may yet worsen and drive the price of oil to a level that also damages the growth outlook. That sentiment is unlikely to change much this week and, perhaps not for several weeks. For investors that means avoiding risk assets and stocking to defensive themes until some of these issues are resolved or stabilized (see Stock Watch below).

The eurozone and the euro will hold centre stage at the start of this week and that will be a big contributory factor to where the dollar-euro rate trades. The dollar remains one of the major factors in the oil and metals market and a driver of sentiment towards risk assets generally. EU Finance Ministers are scheduled to meet early this week to decide on what action is required to resolve Greece’s debt problem. The yield on Greek debt and the CDS market all clearly show that investors are pricing in a high risk of Greek debt restructuring, albeit most expect a fresh bailout as part of that restructuring

Last week the dollar extended the previous week’s rally as investors reverted to the US currency as a haven to escape the threat of a worsening debt problem in the eurozone and the threat to growth in Asia as China introduced further measures to slow credit growth. The dollar gained 1.4% against the euro to close at $1.4118.

Gold staged a strong rally early as traders took the view that a price below $1,500 per ounce is unjustified. But the mid week strength did not hold as the dollar rally undermined the case for haven assets. Gold fell 0.9% on Friday to cut the five-day gain to 0.1% and the closing price to $1,493.6 per ounce.

The full note, with this week’s Stock Watch, diary, weekly funds flow analysis, tables showing the best and worst share performance of last week and year to date can be downloaded here Download Russia_Week_May_17_11.