Stock indices are booming, commodity markets are entering a supercycle

How the week on world markets went

The week was quite smooth. The main events in the Russian market were geopolitical turbulence (which, however, brought neither the ruble nor the stock market down) and the decision of the Central Bank of the Russian Federation (which, however, brought no surprises). Oil continues to grow and updates the highlights for several years followed by metals – it looks like a new supercycle is maturing in the commodity markets. Yaroslav Kabakov, Strategy Director of Finam IC, assists Realnoe Vremya in reviewing this week’s world market events.

Incredible Walt Disney and the US Index Rally

This week, US investors listened to the rhetoric of Fed Chairman Jerome Powell at the New York Economic Club. He expressed concern about the situation in the US labor market. The head of the US regulator said the recovery could take many years. But there was also an incentive for investors in his speech: the Fed intends to wait for inflation at 2% a year before limiting the monetary stimulus. This means that zero rates remain in place for some time. At the end of the week, this was positive news, which strengthened the positions of US stock indices.

At the end of the week, the Dow Jones, S & P500 and Nasdaq remained in black. All three of America’s largest stock indices are trading at their peak. Volatility in the U.S. stock market has slowed, and the market’s main focus is on how quickly Biden will accept the promised $ 1.9 trillion package of aid to the country’s economy.

Jerome Powell expressed concern about the situation in the US labor market. Photo: Susan Walsh, Pool / AP / rbc.ru

Among the interesting corporate events in the US market – the reporting of Walt Disney, which again showed a strong financial result, although the forecasts were negative. The company’s shares have doubled in value over the past year thanks to the streaming platform tripled the number of subscribers under lockdown conditions. Paradoxically, Walt Disney was able to increase its capitalization in light of the complete closure of its theme parks with closed cinemas around the world and the curtailment of some of its projects.

Yaroslav Kabakov, Strategy Director of Finam IC, comments to Realnoe Vremya:

“The general economic situation in the US stock market is now determined by the expectation of the stimulus package that Biden promised. And the positive reporting from the largest companies allows investors to stay in long positions, they are not in a hurry to record profits yet. Despite the fact that the stock markets have now reached a peak, as such, there is no rush to correct. We can certainly remain at current levels in the near future. Some stories will of course be played out – and this is happening locally. But if investors wanted to take their profits and leave the market immediately – it would already be very possible to use the current conditions for this. So the potential for supply growth is still there – but it is already fading. Some investors are obviously worried about this circumstance and the future outlook. ”

Nabiullina’s brooch: a point in the “dove” messages

On Friday, the Board of Governors of the Central Bank of the Russian Federation again decided to keep the key interest rate at 4.25%. This is not a surprise to the markets. In its release, the regulator says demand is recovering faster and more stably than analysts expected. The central bank believes that inflation expectations among companies and the population are still high. There is some recovery in the financial and commodity markets, and the Russian central bank is convinced that it is possible to thank vaccination for this.

All this suggests, according to the regulator, that the risk of inflation falling below the acceptable level no longer weaves at the annual horizon. So the Bank of Russia’s inflation outlook for 2021 was raised to 3.7% -4.2%, and there are still no preconditions for further easing of monetary policy. It is unlikely that Russia’s Central Bank will continue to cut interest rates in the near future.

The central bank believes that inflation expectations among companies and the population are still high. Photo: a video screenshot

The rhetoric that the regulator sees the potential for further interest rate cuts disappeared from the release of the Russian central bank. As if confirming the end of the “dove” period, Elvira Nabiullina decorated the lapel of the jacket with a very eloquent brooch in the form of a plain dot. Perhaps this signals, “Enough. We are not lowering the rate again. ”

Yaroslav Kabakov believes that Nabiullina’s communication provided some support for the ruble quotations:

“To some extent, the end of the soft monetary policy announced by Nabiullina will support the ruble, contrary to other expectations (for example, foreign policy). But there is no direct link between the ruble exchange rate and the strengthening oil. The ruble will begin to win back high oil prices as exporting companies increase export earnings. But the potential for strengthening the national currency is there, we believe. ”

So far, it is possible to see that the ruble this week has risen against the dollar by 0.4% (the exchange rate is now 74 rubles per dollar), the euro exchange rate remained almost unchanged, and on Friday trading stopped at 89.49 rubles .

Lavrov’s words did not become a brick on the ruble and the Russian stock market

In the Russian stock market, we are under pressure from potential sanctions – the whole of the European Union is discussing the expulsion of diplomats and the trial of Navalny. According to many experts, there are geopolitical risks. And we are seeing an outflow of capital from the Russian market, recorded for the first time in 16 weeks (and this put pressure on Sberbank shares, which sank this week). But it’s not that bad. We do not see a sharp decline in stock indices. At the end of the week, the oil and gas sector traded higher than expected: Rosneft, Gazprom Neft and Gazprom. Among the non-resource companies, Magnit shares are doing well.

As for the harsh rhetoric from Sergey Lavrov, who in the middle of the week said that Russia could cut ties with the EU at any time, so contrary to the expectations of the most nervous investors, this did not fall the market, and even the euro did not rise against the ruble.

Sergey Lavrov said in the middle of the week that Russia could cut ties with the EU at any time. Photo: gazeta.ru

Yaroslav Kabakov explains this by saying that nothing terrible was said in general and that a new round of sanctions is unlikely to go through the entire Russian economy. Most likely, these measures in the European Union will again be personal:

“To a certain extent, we see that there is an attempt to end the foreign policy conflict and somehow stop the problem of protests. Lavrov’s rhetoric in the press was a bit exaggerated. But it looks like they’ll try to smooth this statement out now. And by the way, nothing extraordinary was said. It is clear that if the EU imposes harsh sanctions against e.g. Capital circulation in euros, we will cut them off gas. Everyone is aware that the effort for further development is also quite high. Of course, there are risks. And if there are sanctions – they will be targeted at specific individuals: some will be banned from entering the EU states, some may freeze their accounts. On the other hand, there is the problem with Nord Stream 2, even though Germany does not want to connect it with everything that happens … ”

Has a new supercycle started in the commodity markets?

Oil prices continue to win coronavirus collapse. On February 13, Brent futures prices crossed the $ 62 mark for the first time in a long time. In general, we see further growth in the commodity markets. Compared to April 2019, oil is three times more expensive, sugar has reached a four-year peak this week, nickel and platinum – at the highest in the last 6 years updated cobalt two-year highs, copper – eight years.

“Why is oil growing?”, Comments the specialist from Finam Group. “This is only facilitated by the lack of oil in the markets. The industry is recovering, OPEC continues to say that in 2021 there will be a deficit, the peak of which is planned for May. Second, we see a rapid recovery of the industry despite the lockdown. Even under these conditions, the economy is starting to recover faster than expected, even though the restrictions have not yet been lifted everywhere and not for everything. Plus, of course, the expectations of the transport tourist flow now stimulate oil traders’ purchases of oil in the future. ”

By the way, JPMorgan analysts point to the fifth wave of the commodity markets supercycle in the last 100 years. According to experts, the rise in commodity prices will continue – it will be supported by the recovery of the economy after the pandemic and the ultra-soft monetary policy of the global economies. Both the weakening of the US dollar and the impact of the environmental agenda are contributing to the strong position of commodities. The last commodity supercycle so far was observed from 1996 to 2008.

Yaroslav Kabakov says:

“Rising commodity prices can create imbalances in strong economies, but will at the same time provide an incentive for the development of developing economies – such as Brazil, India and, of course, Russia.”

By Lyudmila Gubaeva


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