Market Watch November 7: Moscow's mixed bag, as the global outlook darkens further
Russian investors turning on their computers on Friday morning could have been forgiven for doing so with a degree of trepidation. After sizeable falls locally on Thursday, while they were dining the FTSE and Dow were both tanking, with an IMF warning of a protracted global slowdown turning crude and metals prices to mush. Rate cuts by the Bank of England and ECB, amongst others in Europe, appeared to have done little to encourage buyers to come out.
On Friday morning Tokyo and Sydney continued the trend with the Nikkei falling a further 3.5% and the ASX a further 2.3%, as the Hang Seng managed to close 3.2% on the upside on expectation the Chinese government may follow in the wake of the ECB and Bank of England with further rate cuts. Additionally the overnight falls in crude prices ended with something of a floor appearing at about the $60 BBL mark for U.S. crude and above the $57 BBL mark for Brent.
Against this background Russian stocks opened lower before staging a recovery with the opening of European bourses, and then gently easing back towards where they started throughout the afternoon ahead of the opening of the U.S. markets. At its 18.00 close the RTS was down 2.17% at 760.62, with the Micex closing 45 minutes later up 3.62% at 725.93. As on Thursday, the additional 45 minutes trade on the Micex was significant – this time for a strong closing rally.
Although the downward shift in crude prices encountered stiffening resistance at about $60BBL there seemed little incentive to push them higher off the mark, despite warnings from the IEA that crude prices can be expected to rebound from the current levels, over the longer term, when the global economy begins to recover. This led to the unusual sight, on the Russian indices, of the energy majors drifting, while other stocks made the running. At the end of the day on the Micex, GazpromNeft (up 2.02%), Lukoil (up 1.91%), and Novatek (up 7.6%) had managed to finish higher, while Rosneft (down 4.18%), and Gazprom (down 1.17%) were off the starting mark.
In the metals sector, a slight rebound in gold prices translated into a minor gain for Polyus Gold (up 0.95%), with Polymetal (up 3.69%) also higher and Norilsk Nickel (down 1.57%) easing further. Steelmakers NLMK (up 5.26%) and MMK (up 2.12%) also firmed while Severstal (down 1.34%) eased. In the broader resources sector coalminer Raspadskaya (up 1.3%) saw the light, while Uralkali closed more than 9% lower after the Government indicated it wanted to reopen inquiries into a mine flooding at Berezniki in 2006 which has required the subsequent rerouting of train lines.
Telecoms had a generally positive day with Dalsvyaz (up 2.17%), Southern Telecom (up 3.35%), Center Telecom (up 6.63%), and North West Telecom (up 5.91%) all gaining, leaving SibirTelecom (down 11.36%) to deliver the downside.
Retailers Magnit (up 3.83%) and Dixy (up 3.85%) were offset by upmarket counterpart Sedmoi Kontinent (down 1.86%). Drink and dairy producer Wimm-Bill-Dann (up 2.32%) was offset by agricultural producer, Razgulay (down 1.29%).
With financials, Sberbank (up 7.31%) left VTB (up 1.8%) again languishing in its wake, but both fared better than Bank Vozrozhdenie (down 6.57%). In other sectors, pharmaceutical Veropharm (up 7.74%) had a strong day, with beauty products maker Kalina (up 1.31%) also gaining.
Whilst this was unfolding in Moscow, European bourses found themselves moving higher almost despite the prevailing mood amidst investors. In London the FTSE 100 gained more than 2% with a late afternoon rise in crude prices providing upside for BP and Shell, while Russian focused Imperial energy jumped more than 20% after Russian market regulators approved its takeover by India’s ONGC. In Frankfurt the Dax added 2.5% with retailer Metro adding more than 7%. In Paris the Cac 40 also added 2.4% with foodmaker Danone gaining 6%.
In the United States more bad economic news didn’t deter buyers moving in. After being softened up with a warning from General Motors that it could run out of cash this year, while reporting a $2.5 Billion 3Q loss, to go with Fords unveiling of a $2.9 Billion 3Q loss in its core automotive operations, investors found themselves privy to employment data from the worlds largest economy showing that it had shed more than half a million jobs in the last 6 months and now has its worst employment figures since 1994. A collapse by GM has been estimated to potentially affect the employment of more than 2.5 million people in the United States. Maybe it’s the expectation that that the Fed will trim its already wafer thin overnight rate at its December meeting, maybe it’s the expectation that someone will do something to restore the wreck of the U.S. automotive industry, maybe its even the thought that things certainly cant get any worse, or maybe its bargain hunting, but somehow investors found it within themselves to go out and buy. Maybe it was delirium. The Dow added 2.85% for the day with the Nasdaq gaining 2.4%. Exxon lifted 5% on rising crude price during the U.S. day (after the Russian markets had closed) with Alcoa up 8%. As would be expected of any company warning about its continued operational viability GM fell 9%. While its nice to have an upside for a day, the outlook is nothing but grim. Russian investors go can in with more trepidation next week.