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Inflation, transitory or not, is increasingly becoming a drag on equities

  • Global markets retreated last week
  • Earnings and dividends the main catalyst for Russian stocks
  • Busy week for Russian macro releases

Earnings and dividends the main catalyst for Russian stocks: Inflation has in recent weeks been dominating the headlines as well as the sentiment and direction of global markets. With that in mind, the minutes of the Federal Reserve’s recent policy meeting will be closely watched on Wednesday. So far, most Fed members have been dovish on policy, arguing the spike in inflation is transitory; but that said there is a risk it could get baked into expectations. The reflation trade has been the driving force behind the rally in Russian stocks since last November and that trend is expected to continue for now. But that said, rising prices and costs risk becoming a drag on economic growth. So while on one hand inflation has driven commodity prices towards record highs supporting cyclical stocks in particular, it could become a double-edged sword, and that is putting investors on edge. The Chinese government has been engaged in verbal and legislative intervention to curb metal price growth – there was clear evidence of that last week on the iron ore market – and that can be expected to continue. The Russian market can be expected to be guided by more conventional drivers such as economic growth, inflation and the state’s economic agenda, with geopolitical and sanctions risks having eased considerably. This week’s gains are likely to be hard fought unless new catalysts emerge and that goes for the Russian market and the global markets equally. Q1 earnings are in full swing this week and as we enter the quiet summer period attention among Russia investors will switch to the dividends season which reaches a climax over the coming weeks.

Busy week for Russian macro releases: In the Russian macro universe, Rosstat is scheduled to release 1Q21 GDP figures on Monday. The consensus expects a contraction of 1.2% y/y and we expect a drop of 1.5% y/y. However, regardless of the scale of the decline, the outlook for this year will largely depend on the 2Q21 data: We expect Russian economic growth to come in around +6% y/y for the second quarter The first confirmation of the strength of the 2Q21 recovery should come on 19 May with the publication of the April industrial production data (the market consensus and Alfa-Bank expect a 6.5% y/y increase). Monthly inflation data remains a watch factor for the market on Wednesday: For the moment, price growth remains above expectations and for May annual inflation risks staying at 5.7% y/y, which is a negative signal ahead of the upcoming CBR policy rate meeting due on 11 June.


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The contents of this document have been prepared by Joint Stock Company “Alfa-Bank” ("Alfa Bank") as Investment Research within the meaning of Article 36 of Commission Delegated Regulation (EU) 2017/5...

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