Strategy Note /
Russia

Weekly Radar: Russian cyclical stocks a haven as global monetary policy tightens

  • Action-packed week with Russia-West security topping the bill

  • Markets open 2022 on the back foot

  • Geopolitics high on the Russian agenda this week

John Walsh
John Walsh

Equity Strategist

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Contributors
Denis Dorofeev
Boris Krasnozhenov
Alfa
11 January 2022
Published byAlfa

Action-packed week with Russia-West security topping the bill: There is an action-packed week ahead as Russian market participants return from the New Year holidays. On the global front, the main focus is on inflation, particularly US CPI on Wednesday. The expected 7.1% CPI figure would put additional pressure on Federal Reserve policymakers to act. US Treasury yields have moved higher (10UST is currently at 1.8%), as investors turn their focus to inflation data and the prospect of a rate hike by the Fed as soon as March. That is starting to reduce the appetite of investors for equities – particularly pricey growth and tech stocks. Equities in general are expected to come under pressure if the yield on 10UST exceeds 2.0%. That said, there is demand for banks and commodity stocks – essentially the reflation-trade cyclicals that have seen strong demand since November 2020. The rapid spread of the Omicron variant of Covid globally remains a key risk and threatens to curb consumer spending and growth. China’s strict measures to lockdown tens of millions of people in cities across the country to contain the spread of Covid ahead of next month’s Olympics threatens to increase bottleneck pressure across the global supply chains. Geopolitics is back to the fore this week with a new twist from a Russian perspective following violent protests across Kazakhstan last week. Assuming the tensions wind down in Russia’s southern neighbor and the situation stabilizes, the crisis looks unlikely to be a restraining factor for Russia as diplomacy begins on security issues with the US, EU, and NATO this week. Tough negotiations are expected, with no immediate breakthroughs anticipated. As long as dialogue continues and escalation with Ukraine is avoided, Russian assets should continue to claw back the losses of November and December. We remain bullish on cyclical stocks in the oil & gas, metals & mining, fertilizer and banking sectors.

Other topics covered:

Markets

  • Markets open 2022 on the back foot

  • Geopolitics high on the Russian agenda this week

  • US CPI in focus on Wednesday

Macro, FX & Commodities

  • Commodity markets remain robust

  • Oil to slip lower as supply risk fades: expect Brent to hover above $80/bbl if geopolitical tensions ease

  • 4Q21 earnings season kicks off Friday