August 29, 2011
Out of the Briar Patch?


Higher today …
Risk appetite is back on the table for now, following statements out of Jackson Hole over the weekend from central bankers and national leaders: US Federal Reserve chairman Bernanke pulled a ‘hybrid rabbit’ out of his hat (see 20/20 22 August); the US White House is hyping President Obama’s post-Labor Day ‘jobs creation’ speech; German Chancellor Merkel and Obama vowed to act to shore up a global recovery; and IMF chief Lagarde, ECB chairman Trichet and OECD head Gurria joined with Bernanke to urge national governments to act swiftly to adopt fiscal policies that foster growth, warning that monetary authorities alone cannot repair their respective economic ills – each is a step in the right direction. Helping sentiment, the 2Q11 Russian earnings season has kicked off and ought to bring a healthy dose of good results on steady economic growth and commodity prices. The expectation of strong results from Gazprom and Sberbank (Tuesday), LUKOIL (Wednesday) and VTB (Thursday) ought to lift interest in the names. Expect a broad-based rally today, led by growth stocks (banks, oils and natural gas). For now, Bre’r Rabbit is out of the briar patch. (Note: Next 20/20 post forthcoming in October.)    Full outlook…

August 22, 2011
Expecting The Proverbial Rabbit?


QE3 bets offer S-T lift …
Worsening US and global economic indicators, together with a festering euro zone debt crisis and slowing global growth, will prompt traders to bet the US Fed will announce QE3 at week’s end (Friday, 26 August) and, thereby, provide support to global markets during the week. At the open, buying-in appears to be a sound play – the RTS has shed 21% mtd and 26% from its 8 April ytd high of 2123.56, traders will be betting on QE3 and no macro reports are pending that could derail sentiment. Not least, sentiment will be bolstered by unconfirmed reports that the Qaddafi regime is capitulating — the price of crude is dropping and triggering rumors that it may continue to decline to levels that defuse inflationary pressures and support economic growth. Mid-week trading is another story — expect high volatility, with upside bias on schizophrenic trading. Looking ahead to Friday, a watchful eye on Jackson Hole is advised – Bernanke may well pull a ‘hybrid rabbit’ out of his hat.    Full outlook…

August 1, 2011
‘AA’ Tango

Paradigm shift is engaging … The RTS/MICEX will open resoundingly higher on the knee-jerk relief brought on by the US’ dubious aversion of default. Growth / export stocks, particularly oils, natural gas and industrial metals, as well as banks, infrastructure and discretionary consumer goods should fare well. Value plays will give way to finance growth plays. The relief rally, however, may well be very short lived: More sober eyes will see that the US’ debt-deal ‘Tango’ merits less than a ‘AAA’ score; disconcerting macroeconomic data points among core economies continue to mount (e.g., dismal US 1Q11 and 2Q11 GDP numbers, slower growth from the EU to Asia); PIIGS bond yields are surging as euphoria over the Eurozone debt deal is receding precipitously; and corporate earnings guidance for 2H11 among developed economies has been scaled back on near stagnating economic growth. Against this backdrop, prudence suggests select selling into the expected relief rally, locking in profits and shifting cash into value and dividend plays in anticipation of potentially weak data points set for release this week, e.g., US ISM mfg and EU PMI (today), motor vehicle sales (Tuesday), ISM non-mfg (Wednesday), initial jobless claims (Thursday), unemployment stats (Friday) look set to underscore weakness. That said, look beyond the inevitable short- to medium term volatility; Russia – and other core developing economies – will increasingly capture a larger volume of capital. The paradigm shift has engaged, the torch has been passed. (Note: The next 20/20 outlook will be posted on Monday, 22 August)    Full outlook…

July 25, 2011
Bet On Tango


Shall we dance?
The week ahead looks set to repeat the performance of the past week – a lower open, higher mid-week and moderating close. The catalyst: Sunday’s resurrection of the political impasse over the US debt ceiling. Too fresh to digest the setback, this morning markets across the spectrum are trading lower, save for the safest of havens – gold. Expect the risk off trade to be operative when the RTS/MICEX open the week – defensives, especially PMG, ought to be in favor as money shifts out of sectors / stocks with the greatest exposure to global growth risks. Oil should also rise – positive for Russia — as investors flee the embattled and weakening US dollar. Thereafter, the stage may be set for select buying. Indeed, having priced in the initial angst and refusing to believe elephantine republicans and donkeyesque democrats will fail to reach an accord to raise the US debt ceiling, expect markets to initiate a relief bounce. Markets should not have to wait long, the deadline is 2 August.    Full outlook…

July 18, 2011
Into A Political Vortex?


Default fears intensify; Russia resilient.
Global markets, the RTS/MICEX inclusive, are in for another week of weakness and volatility. Sovereign default risk angst from Europe to the US has intensified for want of leadership and global macro data points again appear set to be mixed, together trumping ever-so relatively positive 2Q11 earnings results out of the US, Europe and Russia. To be sure, US markets pared gains to close just marginally higher on Friday, and this morning Asian markets are mixed, while the US S&P, European and RTS futures and Brent crude are trading lower. Gold is higher; no surprise. Expect the RTS/MICEX to open the week mixed, with a downside bias — defensive posturing ought to be favored as equities most exposed to external dynamics (i.e., banks and export stocks) are likely to be bear the brunt of risk off sentiment. Thereafter, intra-week trade will likely see sentiment sweeten and give way to a bounce – with critical deadlines looming, expect statements from US and EU policymakers to assure that defaults are not in the cards. For portfolio investors and traders alike, market dynamics will create select buying opportunities as early weakness will enrich already attractive valuations, while oil demand and prices, geopolitical shifts, Asian urbanization and Russian modernization will continue to be supportive of the Russian balance sheet (see also Post Mortem: Déjà vu, QE redux?).    Full outlook…

July 11, 2011
Reality Checks Irrational Exuberance


More weakness in the offing – Russian valuations richen, but …
The bounce commencing 27 June and ending Friday, 8 July, has revealed itself for what it was – a dead cat bounce. Expect losses incurred on Friday to be extended this week — banks and commodities should lead the decline, while select defensives, especially PMG stocks, ought to fare better. Although the expected weakness will enrich already relatively undervalued Russian valuations, the trough is likely to deepen and, as such, cautions against wading in at this time. At week’s opening bell, investors would be well-advised to remove cash from the table and bide time for more favorable entry points. To be sure, economic fundamentals have checked liquidity driven irrational exuberance: US markets plunged on Friday, Asian markets, commodities and US S&P 500 futures are trading lower this morning and this week and those ahead are certain to feature more evidence the global economic recovery faces formidable headwinds.    Full outlook…

June 27, 2011
For Want Of Traction



Brace for deceleration.
No shortage of confidence-rattling macro drivers this week: the world’s major central bankers cautioned markets on Saturday to prepare for smaller bank profit margins on new higher capital reserve requirements and also warned that central banks need to start raising interest rates more aggressively to control inflation; Greece today will commence debates that will lead to a vote on a $112 bln austerity package, passage of which is a precondition for the release of a second bailout tranche necessary to prevent a Greek default; market moving macroeconomic data points out of the US, EU and China ought to remind the global recovery is challenged; US life support from QE2 ends Thursday 30 June and 2Q11 earnings season is set to kick off. Against this backdrop, Asian markets (MSCI Asia Pacific Index -1.1%), Standard & Poor’s 500 Index futures (-0.2%) and crude and copper are trading lower this morning as cash seeks relative safety in the US dollar, which is advancing against the major currencies including the yen and euro. Today, expect the RTS/MICEX to follow the weak trend in worldwide markets. Midweek, markets will rise and fall in lock step with external news flow – especially, markets will be monitoring whether the recent slippage in macro data points were an anomaly or the sign of a significant stall. On the heels of dire US economic data points and rising fear over Greece, any even moderately less bad macro or news flow could lift markets irrationally – and unsustainably — higher. Prudence would therefore recommend selling into any relief bounce, including the 1.5% bounce on Friday, and increasing cash positions pending greater clarity over the trajectory of the global recovery and a more opportune re-entry. PMG stocks and select defensives are the plays of the week, at least.

(Note: The next 20/20 outlook will be posted on 11 July, in abridged form;

a full 20/20 outlook will commence again on 18 July.)

June 20, 2011
Fear Will Haunt


For cause — weak open …
The headwinds of uncertainty and global deceleration continue to blow, spooking markets and obscuring the long-term implications that favor Russia (see Be Not Afraid below). In early trade, sentiment will be governed – and, thereby, dampened – by three issues: Mounting concern that Greece will fail to escape a disorderly ‘re-profiling’ after Eurozone finance ministers today conditioned the release of the July tranche of aid (Eur12 billion) to Greece on passage of a second austerity budget (next week) and as Greek Prime Minister George Papandreou and his government face a vote of confidence (Tuesday); the US Fed’s economic update and response (Wednesday) to rising signs of stagflation; and the implications of Japan’s unexpectedly rapid decline in exports. The week also brings investors closer to 30 June (end on month rebalancing, the end of QE2), 2Q11 earnings season (previews have been to the downside) and 2H11 portfolio rebalancing – good cause for volatility and weakness. No surprise, this morning Asian markets are paring earlier gains and euro-flight to the ‘relatively’ relative safety of the US dollar is strengthening the latter and, in turn, triggering a decline in commodities.     Full outlook…

June 14, 2011
Darwinian Nature Of Money


Survival of the ‘specie’ …
The RTS / MICEX ought to ride modestly higher at the open on better than consensus economic growth data out of China. Thereafter, sentiment should quickly cool — the very same growth data also signaled China will again tighten money supply to dampen accelerating inflation, while the US economy continues to misfire, EZ sovereign debt fallout fears intensify and Asian economies battle rising inflation. How the week plays out will largely be a function of external news flow relative to future growth and recent market corrections – even ‘less-mediocre’ than expected data points will likely be sufficient to buoy global bourses off their recent lows, while disappointing news flow would again stifle sentiment. Domestically, the St Petersburg Economic Forum at week’s end ought to deliver positive feedback on energy deals at least, which would give a boost to sentiment. Against this backdrop, trade this week ought to be volatile – albeit range-bound. For now, with global economic growth expected to decelerate during the summer months and conviction eroding in the recovery, selling into rallies would be prudent and buying into anything less than a material dip highly suspect. That said, in the run up to 4Q11, bargains may be had – the final quarter appears more likely to see a rebound.    Full outlook…

June 6, 2011
>2Q11-2QE-QE3 = >3QEE = <4Q:-)


Don’t Panic, Position …
Expect the maelstrom to dissipate before triggering a long-anticipated correction. Despite poor macro data points last week that signaled global economic growth is decelerating (see Post Mortem), appetite for risk assets may exhibit varying degrees of schizophrenia as investors await additional evidence that confirms either an extended downturn has begun or a short-term soft patch has emerged – the evidence, arguably negative, will continue to emerge this week, in the coming weeks, and as the 2Q earnings season unfolds. For now, the tug of war between bears and bulls, together with QE3 bets (be contrarian, bet against QE3) and the recent selloff, will generate trading opportunities – PMG, oil, natural gas and bank stocks could prove volatile, hence interesting plays. For investors with a 12-18 month horizon, Russian equities are undervalued — Brazil trades at a PE of 10.3, China at 12.5, India at 14.6 and Russia at 6.7 — and offer attractive upside potential, suggesting additional downturns would bring even more attractive entry points. With volatility expected this week and a correction anticipated in 3Q11, selling into material bounces would be a recommended play, while buying into any material downturn ought to be a highly selective and well timed trade.    Full outlook…

May 30, 2011
Risk – ‘Wither’ Thou Goest?


Scary Week, Scarier Month – Capital Uncertainty.
Today and tomorrow may enjoy a bit of cautious buying, extending last Friday’s gains – the EZ has hinted Greek debt will receive a bailout, the price of crude is ticking higher, the 2011-12 crude price forecast has been revised upward, Russia’s 2H11 outlook appears stronger (lower inflation, lower deficit, improved capital flow, improved bank profile, tax concessions) and US markets are closed Monday for Memorial Day holiday, limiting the release of negative news flow from the world’s largest economy until late trade tomorrow. The most liquid names, global growth themes and stocks that have retreated the most of late should lead the market, especially among oils, gas, financials and consumer goods. Any upside, however, will be on low volume and capped by caution. The first days of summer, arguably, may be telling. Wednesday and Thursday, 1-2 June, will bring key EZ debt-related news flow, US-China-German PMI numbers and multiple other important US data points (e.g., ISM mfg, consumer confidence, jobs); the week will end 3 June with nothing more a market driver than US unemployment stats. If the numbers fall short, both despite and as a consequent of the wall of money thrown at the problem, it would unequivocally reveal the global economic recovery has yet to take genuine root and is set to further weaken.    Full outlook…

May 23, 2011
Eye On The Prize


Russia Not Immune To Winds Of Woe.
The global omens (too numerous to delineate here) are bearish, rightly prompting investors worldwide to increasingly sense the global equity rally has run its course (see previous 3 posts). This morning, global markets from equities to commodities to currencies – save for gold and the greenback — are trading lower. Despite generally upbeat macro data points out of Russia, the RTS / MICEX will not be immune to global angst. Expect Russian bourses to extend last week’s losses at the open, with the closes intra-week and at week’s end a function of external events and data points. At this writing, various technical analyses (including Bloomberg) suggest the RTS has been oversold and will not broach the support level of 1800. However, global dynamics render the argument overly optimistic, if not specious.Arguably, kicking the can down the road is ever less an option, which implies a reckoning — stemming from global largess and austerity — looms large. Hence, prudence advises not to expect a reversal of sentiment at this juncture. Rather, another bout of select consolidation would be in order: holdings across-the-board (especially in commodities, banks and industrial metals) should be reduced, with the profits selectively reinvested at a more opportune time and level.    Full outlook…

May 16, 2011
Finding Equilibrium Removes Froth


The ‘Morrow Brings Better Value.
The macro outlook will weigh in this week, again blotting out the patches of blue delivered last week (see Post Mortem). Today, expect the RTS/MICEX to exhibit more weakness across the board, led by the most liquid oils, gas, metals and banks as resource-heavy Russia is perceived as relatively more vulnerable to a global slowdown in demand for GDP building blocks. Meanwhile, data point forecasts are mixed this week, opening the way for more volatility with a downside bias. For the stout of heart with a long-term investment horizon, consider a select few trades that may soon buck the trend (see Themes To Consider). Best advice: hunker down a bit longer, the ‘morrow brings ever closer stability, respite and opportunity.

Finding equilibrium enhances Russia’s investment case. Crude prices (and multiple other asset classes) until recently have risen fast and furious, but without sufficient fundamental cause (see Artificially Inflated Assets) – hence, the correction is natural. Crude prices, although moderating modestly lower at this writing, appear to have ended their precipitous freefall. Arguably, the price is gravitating toward levels more favorable to micro- and macro-level economic growth worldwide. To be sure, such corrections eliminate excessive froth and generate opportunity, as demanding asset valuations tend to find a new, lower and economically productive equilibrium that stimulates organic – as opposed to artificial — growth. A new equilibrium holds promise for Russia as an integral ‘feeder’ of global GDP growth and to the extent that lower oil encourages existential politico-economic reforms.    Full outlook…

May 3, 2011

Quick Temper, No ‘bin Laden’ Relief


Sell in May, go away?
Despite the 1.1% w/w decline to 2026.94 and 4.5% slippage since the 8 April ytd high of 2123.56, don’t expect a sustainable bounce. Markets should open sluggishly and exhibit weakness throughout the week. This year, the adage ‘sell in May, go away’ appears apropos — albeit select bargains may be in the offing.

No relief, again, despite USD-crude dynamic. Any relief trade spurred by the hope – warranted or unwarranted – that Osama bin Laden’s death could lead to an easing of terrorist activities has, as expected, rapidly expired just as quickly as enthusiasm spiked. Indeed, more sober minds prevailed and the specter of a post-bin Laden surge in terrorist activity has tempered sentiment. Absent the ‘bin Laden’ rush, combined with the winding down of the 1Q11 earnings season, fundamentals again are coming to the fore – and, as noted (see A ‘Stimulus’ Too Far, 25 April), the USD-crude dynamic is unlikely to counter the emerging macro picture, which is rife with headwinds that speak to lower earnings ahead.    Full outlook…

April 25, 2011
A ‘Stimulus’ Too Far


Primary Drivers Losing Steam; EM Economies Gird Recovery.
The week ahead is a minefield, rife with triggers that, if the tumultuous ride last week is any guide, have the potential to please or punish – the US Fed decision on QE2 and rates (Wednesday) is the ‘alpha male’ of newsflow this week, followed by a slew of 1Q11 earnings and the release of US 1Q11 GDP results. Add to the equation a changing landscape (see Altered Landscape and Earnings To Moderate) and the 2+ year-long rally in global equity markets, and faltering investor confidence is no surprise. That Asian equity markets are lower and demand for PMG is surging underscore risk aversion and heightened inflationary / weak USD concerns. Against this backdrop, two core drivers that have typically elevated the RTS/MICEX and are operative again today – a weak USD and high crude prices – are unlikely to have the same lift capacity. This week, therefore, prudence cautions to take profit, consolidate and bide time for better entry points.     Full outlook…

April 18, 2011
For Bears & Bulls Alike


Risk Assets Worldwide Face Volatility.
Accelerating inflation, rising interest rates and QE exit plans will prompt markets to again fixate on global fundamentals that call into question future earnings potential and whether current market valuations are too demanding. Given multiple headwinds and signs global economy has entered a phase of slower-than-hoped for growth (see So Many Omens), the better-than-consensus macro data points that led US markets to pare losses on Friday will have little carry over today. Indeed, this morning the quest for relative safety is operative: the USD (and Yen) is strengthening, USTs are rising and PMG is tracking higher, while the MSCI Asia Pacific Index is lower, S&P 500 futures are dipping, Euro Stoxx 50 futures is down, the euro is weaker and crude is moderating. Not immune, expect the RTS/MICEX to open the week with trepidation. Against this backdrop, the macro data points and 1Q11 earnings slated for release this week will assert greater import on how the week will play out – expect each set to offer something for the bulls and bears alike.    Full outlook…

April 11, 2011
Bifurcated On Fundamentals & Momentum


Lower On Fundamentals …
The RTS/MICEX are primed to open – and perhaps close — the week in correction mode. Reflecting the confluence of multiple fundamental headwinds, this morning Asian markets are lower across the board, S&P 500 futures are dipping, the US dollar is moderating, UST-10 are declining, precious metals are rising and oil prices are hovering at inflationary and growth inhibiting levels. The performance of Russian equity markets of late offers a further incentive to pullback: the RTS/MICEX, respectively, are up 2.25% and 1.01% w/w to 2123.56 and 1855.97, and are just 14.6% and 5% off their all time highs of 2487.92 and 1956.14 posted on 19 May 2008. By mid-week, after having digested and priced in much of the angst, investors will be looking to macro economic data points and 1Q11 earnings for relief. Relief may well prove elusive:    Full outlook…

March 28, 2011
Ascent Requires A New Driver


Rally, Lower Oil & External Headwinds Challenge Risk Appetite.
Russian bourses now look primed to see some judicious profit taking and portfolio rebalancing this week. The RTS/MICEX have rallied handsomely. The upward trajectory of the price of crude is hitting resistance (see Oil) on several fronts, prompting some players to close long positions – the move may prove to be premature, if, for example, macro numbers released later this week convincingly exceed expectations. In addition, the pace of the global economic recovery is again under question, threatened by a myriad of catalysts (see ‘Fear’). Sentiment will be further tempered ahead of key economic numbers out of the EU, US and Asia throughout the week – US employment and PMI manufacturing in China set for release on Friday, loom particularly large. This morning, safety is in play — Asian markets are slipping, RTS futures are lower and the US dollar is strengthening. Against this backdrop, especially following the strong rally, expect risk appetite to moderate as investors look for a clear set of new drivers.    Full outlook…

March 21, 2011
Stacked Deck Favors Oil, Ruble


Bet On Incremental Moves Higher
. On the back of high oil prices, cheap money looking for yields, the specter of a steady – if glacially slow and multi-paced — global recovery and an improving Russia story, Russian bourses have outperformed their EM peers and enjoyed healthy inflows of new money year-to-date, while others saw considerable outflows (see EM $Flow). Having rallied, the RTS/MICEX would appear to have largely priced in the drivers and be challenged to extend gains – a variable that could dampen sentiment. However, the week ahead appears primed to provide just that catalyst sufficient to support or lift the price of crude, the allure of commodity currencies and the RTS/MICEX. Until ‘this’ catalyst materializes, expect the market to moderate on muted volume and investors to remove some cash from the ‘crisis themes’ that have outperformed as of late (notably, oil, gas, metals and banks) and reallocate into select domestic growth and defensive themes (e.g., utilities, telecoms, defense). The deck is stacked in favor of Russia: expect the catalyst, and bet on incremental moves higher across the board.    Full outlook…

March 14, 2011
… And Now Japan


Higher Demand For Russian Resources, Materials Imminent. Undoubtedly, the RTS / MICEX are set to open lower today as investors assess the fallout from the devastation in Japan. However, just as Russia has emerged a beneficiary of the Arab revolts and other malaise, the country will also prove herself resilient to the troika of disasters that have hit Japan since last Friday. Following a knee-jerk weaker open, expect select Russian sectors / stocks (especially oil, gas, banks and metals) to reverse course as capital exits ‘crises zones’ in search of higher yielding assets and investors rightly see Russia is well-placed to benefit from the rebuilding and higher LNG demand that will ensue as Japan recovers. How the markets fare throughout the course of the week will, as usual, be subject to news flow on other ‘flies in the ointment’ (e.g., EU austerity measures, PIGS debt, China growth downshift). That said, the primary drivers — high oil prices, loose monetary policies, money exiting ‘crisis’ regions and Russia’s improving story – ought to support the RTS/MICEX at current levels, or send them a tick higher.    Full outlook…

March 9, 2011
A Haven On Oil, Image & Outlook


A Rollercoaster, But A Profitable Ride.
Despite the strong close in US markets and rising markets in Asia today, expect the open this week to be characterized by light volume, consolidation and rebalancing. Indeed, investors must digest events of the past weekend and due to unfold later this week. That said, any material dip ought to be considered both a short-term movement and a buying opportunity, as Russia, of late, is standing out as a relative haven on higher trending oil, an improving image and economic/market outlook. High beta names are certain to weaken as investors lock in some profits and/or shift money into defensive themes, primarily telecoms, utilities, dividend and inflation hedge plays. Thereafter, a shift back into high beta sectors — oils, natural gas and banks – is recommended. Overall, on oil, image and outlook, together with still undervalued equities, the RTS/MICEX appear poised to track higher this week.    Full outlook…