The main Russian news that affected the market during the week was speculation on electricity and gas tariffs

Global markets: Weekly overview

12 December 2008

There was no single direction on the market last week. U.S. President-elect Barack Obama’s efforts to pull the economy out of recession, pledging the biggest public-works spending since 1950s pushed all global markets strongly higher on Monday. However, after it became known that the bailout plan for the U.S. automotive industry lacked the votes to pass the Senate and initial jobless claims jumped to a 26-year high, U.S. stocks declined on Thursday and Friday, posting a loss on the week.

Despite also selling off on Friday most European markets managed a gain on the week, as some of the sectors worst hit by the autumn’s collapse in markets started to show some signs of life, due to analysts predicting that the early part of next year may see some recovery in commodity prices. The Swiss central bank sounded a more cautious note, when dropping interest rates for the fourth time since October, to 0.50%.

Crude oil rose most of the week on speculation that the OPEC is to agree more output cuts to keep oil away from four-year low hit last week. Top oil exporter Saudi Arabia has slashed January supplies ahead of next week’s OPEC meeting, which gave additional positive sentiment to the crude oil market. News that bailout for the automobile industry was not passed, had a negative impact on the oil prices but by the end of the week crude had still managed a rally of around 10%.

The Rouble remained under pressure, and the Central Bank responded on Thursday by widening the band within which the currency basket trades by 1%. Capital outflow and the slump in Russia’s international currency reserves were the main reasons for Russia’s credit rating downgrade by Standard & Poor’s on Monday. The sovereign rating was lowered from BBB+ to BBB with a negative outlook. The agency also expressed concerns about future deficits of the country’s current account and federal budget. Some ratings of Russian corporations and regions were also downgraded.

The Russian equity market posted four consecutive sessions of gains before giving back almost half of the week’s progress on Friday. The better oil prices were largely behind the solid performance until Thursday night, a reversal of the trend in the oil price on Friday was behind the profit taking.

Over the week the benchmark RTS Index rose 10.6% to 652.21.

The main Russian news that affected the market during the week was speculation on electricity and gas tariffs. Shares of RusHydro declined 5% over week, as the company might suffer the most from a possible decision to scale back planned domestic electricity price increases for the originally planned 19% to 5.0%. Gas companies were also badly affected by the news, on fears that the cutbacks in electricity price increases might be extended to gas prices. Gazprom shares gave up most of the gains from earlier in the week, whilst Novatek fell over 25%.

Source: Troika Dialog

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