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Russia

Alfa Weekly Radar: Are storm clouds gathering on global markets?

  • Russian stocks weathered the storm on global markets

  • US CPI data may provide a read-through on tapering potential

  • Chinese macro data are likely to show further slowdown

John Walsh
John Walsh

Equity Strategist

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Contributors
Denis Dorofeev
Boris Krasnozhenov
Alfa
14 September 2021
Published byAlfa

Russian stocks weathered the storm on global markets: Global markets slipped in and out of risk-off mode last week as investors grow more cautious on slowing economic growth, supply disruptions, the spread of the Delta variant of Covid and the prospect of stimulus cuts by central banks. There was solid demand for cyclical stocks in the extractive industries supported by record-high prices for commodities, including aluminum, gas, coal nickel and uranium. Russian aluminum producer Rusal rallied 16% last week, while coal producer Mechel surged by 35%. Gas producers Novatek and Gazprom were also well bid. The rally in commodity-producing stocks helped the Russian stock market deliver a flat performance last week, although the RTS index underperformed due to a weaker ruble vs a stronger US dollar – RTSI (-0.5% w/w @ 1,725) and IMOEX (+0.02% w/w @ 4,003). European stocks retreated – StoxxEuro600 (-1.2% w/w) – after the European Central Bank announced that it would slow down the pace of its pandemic bond-buying program from 4Q21. Wall Street equities notched their biggest weekly decline since mid-June – S&P 500 (-1.7% w/w) – despite being closed on Monday for Labor Holiday, as investors assessed the latest reads on the economy after more strategists weighed in with cautious comments. On the geopolitical front, US President Joe Biden and Chinese leader Xi Jinping spoke for the first time in seven months, discussing the need to avoid letting competition between Washington and Beijing slide towards further confrontation and conflict. Emerging markets drifted lower last week – MSCI EM (-0.5% w/w) – the Hang Seng in particular performed weakly triggered by a selloff in tech stocks due to China’s regulatory crackdown. The MSCI All-World Index dropped by 1.3% w/w. The ruble retreated 0.4% to 72.99/US$ due to strength in the greenback last week. Crude prices closed slightly higher, with Brent posting a 0.5% uptick for the five days to close at $72.92/bbl.

US CPI data may provide a read-through on tapering potential: On Tuesday, the US is scheduled to release August CPI data. The consumer price index -- a closely watched measure of US inflation -- is forecast to show prices continued to rise at a solid pace last month. Economists and policy makers are in the midst of a heated debate on the path of inflation and its persistence, but for US consumers the rapid price gains have whittled away purchasing power. Tuesday's reading will provide more fodder for the debate on whether the current inflation uptick is likely to fade as a handful of drivers causing prices to rise in recent months eventually ease. While Fed Chair Jerome Powell assured markets policymakers would take a measured approach to tapering monthly bond purchases, worries linger that persistent rising inflation could hasten a roll back of loose money policies.

Chinese macro data are likely to show further slowdown: China is scheduled to release a swath of data on retail sales, industrial output and urban investment on Wednesday. There is amounting fear among analysts that this may show a further slowdown in the world’s second-biggest economy. Retail sales are expected to have fallen, going by the plunge in the services PMI last month. Industrial production is expected to fall year-on-year due to a higher base.