Investors are not impressed by the speech of Vladimir Putin

the Results of the week on world markets.

the stock Market

Almost all last week the American indexes showed confident growth. Was that a slight correction may 6th. At the end of last week the S&P 500 was back at the level of 2930 points.

The number of daily registered cases of coronavirus in the United States continues to decline, giving reason for the weakening of quarantine measures. Yesterday the country was discovered less than 19 thousand cases, which is significantly below the average for the last three weeks 28–30 thousand. The number of deaths also is on the wane – last week almost every day less than 2 thousand victims.

On may 12, 46 of the 51 state withdrew part of the quarantine restrictions. In many States, open beaches and parks, as well as enterprises of trade (including shopping centers) and services, including restaurants, fitness clubs and beauty salons. In some States, with some limitations, open schools and higher education institutions.

Last week data was released in the U.S. by the end of April the rate was at 14.7 per cent – significantly lower than expected based on the number of applications for benefits from the beginning "of coronaries”. Over the last week benefits continued to decline, adding 3.2 million people, which brought the total amount to 33.5 million – more than 20% of the entire workforce in the United States. Apparently, some of them lost their jobs temporarily and is not in an active search, which formally lists them among the unemployed.

To date, more than 90% of companies listed in S&P 500 reported for 1к20. The earnings better than expected, showed more than ¾ of the issuers. On the one hand, this gives hope that the market initially overestimated the impact of the crisis and Loktionov on the performance of the companies with which partially linked the strong recovery of the prices of their shares. On the other, positive surprises could lead to better projections for future quarters and disappointing results, with high probability, will contribute to a cooling of the market as corporate reports. Moreover, the results of the second quarter, unlike the first, already fully reflect the impact of “coronaries”.

Is again on the agenda of the return of friction between the US and China. D. trump recently suggested that the Fund, managing more than 500 billion dollars. pension savings of the us military, to sell all positions with exposure to China.

The Asian assets have been under pressure amid anxiety caused by a new increase in the number of cases of coronavirus in South Korea and Singapore.

The majority of European countries continue to show a strong reduction of newly registered cases of coronavirus. A little late with the introduction of quarantine measures in the UK is still on a plateau in the number of newly registered HIV cases. Despite that, Monday was completely removed restrictions on playing sports on the street, but then the government B. Johnson has not yet gone.

France, Spain, Germany and the Netherlands opens schools and shops. From Monday in most countries of the EU residents no longer need to request an electronic pass for leaving the house. The opening takes place in varying degrees in different regions, decisions are made based on the local epidemiological situation, the principle of “red” and “green” areas. The Minister of health of France clearly gave to understand that in the event of a serious increase in new cases restrictions will be introduced again.

The majority of the European indexes followed, the American courts.

The scale of “coronaries” in Russia are growing. At the end of last week the country was on the 4th place in the world and this week can go to 3rd or even 2nd. the Number of deaths in Russia remains at a relatively low level, over the last week daily on average, the virus claimed the lives of at least 100 Russians. Most likely, the number of cases – a direct result of the large number of tests, according to this indicator we are on the 2nd place after the United States.

Despite the formal end of the holidays, restrictions on movement and the work of many companies will continue to operate until the end of may.

Sunday speech of Vladimir Putin, who presented an extensive program of support (payments for each child) and business (soft loans for the payment of salaries, secured by state guarantees), yet made no impression on the buyers of Russian assets – the index Mobimii is still below the closing levels in April.

the bond Market

Значимым для рынка рублевого долга была пресс-конференция главы ЦБ РФ. Регулятор отмечает, что текущая ситуация в экономике РФ соответствует оценке ЦБ по спаду ВВП во втором квартале на 8%. Banki РФ реструктурировали кредитов малому и среднему бизнесу на 343 млрд руб. Россияне подали 1,4 млн заявок на реструктуризацию кредитов.

Is also head of the Central Bank reminded that the current level of public debt of the Russian Federation – one of the lowest in the world, has the potential to increase it. This statement is important in light of the forecast for a huge budget deficit this year and need to Finance it.

As we mentioned earlier, this year hardly have to rely on such inflows of non-residents, the same as last year. The share of nonresidents in the OFZ market in April, according to the NSD decreased by 0.49 percentage points to 30.6%. The capacity of local participants does not allow to count on funding 5–6-trillion deficit. Moreover, given the shrinking surplus liquidity.

Russia's international reserves last week fell by 2.5 billion dollars. and built 567,3 billion. Still huge relative to the debt.

Surplus liquidity in the Russian banks decreased to RUB 1.4 trillion from 2.8 trillion rubles at the beginning of the year. One of the reasons of reduction of liquidity, the CBR sees increased demand for cash in Russia against the background of uncertainty on the timing of isolation. In our view, a significant role is played here by the regular sale of currency in the market according to the budget rule. The volume of currency sales on the budget rule in the period from 13 may to 4 June will be of 193.1 billion RUB 11.4 bn in the day. This was approximately 20 billion a day. Of course, this “dry” liquidity and leads to the growth of the ruble.

The CBR says that the share of OFZs in the balance sheets of banks is at 4%, the space is. In developed countries, the share of government bonds in Bank assets is much higher.

As to buy such a huge volume of OFZ banks themselves can not, the CBR temporarily provide long-refinancing long-term REPO operations are planned for a period of 1 month and 1 year. The first auction month REPO will hold at the end of may, annual – in late June. At an annual rate REPO floating, will change after the key rate. Central Bank of the Russian Federation plans to accept as collateral long-term REPO only Federal loan bonds and bonds of constituent entities of the market with high ratings. Thus, large banks (e.g., Sberbank and VTB) can buy a lot of OFZ and record them in the CBR received under their rubles. That is, the operation does not require even freezing of liquidity. This will allow the Central Bank to Finance the budget deficit without resorting to direct purchases.

The CBR allows the option of reducing the key rate by 1 percentage point at the next meeting in June. This option will be among the topics discussed at the meeting. It seems to us more likely more gradual decline rates. One should rather expect a decrease of half a percentage point. In our opinion, the rate reduction can be considered including as measures to support banks which are now facing quite difficult times, and the same placement of OFZ.

After the rise in oil prices and there is the rising value of the bonds of the oil sector. For the first quarter grew by Pemex: in spite of the significant “paper” the loss associated with foreign currency revaluation of debt at the operating level, the situation remains manageable, the government of Mexico has proposed specific measures to support Pemex in the year and, according to our estimates, will be ready to support the company further. The rising cost of bonds is observed in the segment of issuers “second tier”, where investors continue to assess the real risks of maintaining the solvency of individual companies. In General, the situation for Eurobonds remains favorable, and higher credit spreads provide an opportunity to open positions with high expected profitability on the horizon 12–18 months.

The commodity

Industrial metals mostly rose in the week due to weakening of quarantine measures in China and some European countries, the improving demand expectations for metals. However, we expect most markets in the near future will be in overproduction, which would make it more difficult for prices to recover to pre-crisis levels.

The price of oil continued its rally in the week thanks to the entry into force of the transaction OPEC+. The optimism may be premature, because the problem with storages continues to be very serious: for example, storage in Cushing is 85 percent full. We can also note how the spread between WTI and Brent begins to narrow – most likely by reducing oil production in the United States nearly 1.2 million barrels per day since the beginning of the pandemic. The number of active drilling rigs fell to the lowest in 3.5 years, and the trend may continue, given the difficult conditions for shale companies.

Saudi Aramco announced decrease of profit by 25% in the first quarter, but the dividends will be paid in accordance with the plan, unlike other major companies that have supported the price of the shares of the company. To speed up the recovery in oil prices, Saudi Arabia plans to cut production in June by another 1 million barrels per day. The idea was supported by Kuwait and the UAE, which will reduce production by 80 thousand and 100 thousand barrels, respectively. May 1 oil and gas condensate in Russia dropped to 9.45 million barrels a day. Due to the terms of the transaction OPEC, we will likely see a recovery in oil prices, but slower pace, as demand remains depressed, and the storage continues to fill, at least not as fast.

We wait until the end of may, oil prices will slightly higher than current levels, as the risk of oversupply is still high, and the effect of additional minor reductions due to still weak demand.

Industrial metals recovered in the week, with the exception of aluminium. Chinese exports of aluminum in April fell by 12% due to weak external demand. Also, the trade data showed import growth of iron ore by 20% in April, and that means that domestic demand for the metals remains intact. It remains to wait when the world trade will be removed, quarantine restrictions, up to this point prices of most metals will depend on domestic demand.

The precious metals continue to move sideways. Drivers of price growth of recent months (the demand for protective assets with high volatility) are gradually moving away from the agenda. Therefore, a possible correction in gold, especially since the majority of commercial and Central banks get rid of gold reserves.

But in the long term we retain a positive Outlook. This is due to the fact that we again have entered the massive monetary stimulus expectations, the dollar rates are at record low levels.

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