Last working week of October. October 31st is Halloween, and the Russian market is already feeling the Halloween mood. Let’s look at the news:
- Moscow Exchange index has dropped below 2,500 points
- USDRUB near 79.5
- CNYRUB at 11.2
Reasons?
As always, there are two reasons, and one is connected to the other:
Trump has once again changed course. There will be no meeting with Vladimir Putin. Sanctions have been imposed on Lukoil and Rosneft. The US is taking a new approach toward escalating the conflict. Russia has demonstrated a new missile called Burevestnik. In the near future, a meeting between Trump and Xi is expected. The lack of progress in negotiations is shifting expectations regarding the trajectory of the key rate.
The second reason is the Central Bank’s decision. More precisely, not the decision itself, but the accompanying forecasts. So:
- The Central Bank cut the key rate by 50 basis points to 16.5%.
- Since this was a reference meeting, the Central Bank updated its medium-term forecast.
The average rate for this year is expected to be 19.2%. Considering we have only one meeting left, in theory, the rate could be lowered by another 25 basis points at the last meeting on December 29th, but, as you understand, this will no longer make much difference.
Next year, the average rate was previously expected to be 12-13%, but now the Central Bank is planning 13-15%. Not only has the average increased, but the range has also widened significantly, meaning uncertainties have grown. Thus, despite the rate cut, the meeting was rather negative for the market.
As a result, the Moscow Exchange index made two strong downward gaps. The first gap was on October 23rd (sanctions), the second gap was today (rate decision and overall sentiment). The index has broken below 2,500 points, and it seems this breakout is not false. Although it’s still too early to judge.
The nearest support range is now 2,370-2,430 (minimums from Q4 2024), so the potential for further decline from current levels is about 4%, after which we’ll need to reassess.
The overall decline in the stock market since the beginning of the year is about 14.4%—worse than in 2024, but unlikely to surpass 2008 and 2022.
What should we do?
In general, accumulating stocks for the long term (end of the conflict, normalization of rates) seems like a reasonable strategy, but be prepared to hold for a long time. Otherwise, consider bonds. Here, it’s best to minimize risk by avoiding developers and companies with large debts. It’s advisable to review your portfolio for such positions and get rid of them.
What about the currency? Nothing positive here either. I don’t think the dollar will move significantly below current levels, but judging by the situation, the range of 80-90 will likely persist until the end of the year.
Global News
The price of oil has surged due to sanctions against Russia and is now at $66 per barrel.
The price of gold has corrected and is near $4,000. There’s a chance it could go lower, but this will depend on whether Trump and Xi sign a trade agreement. In my opinion, they will eventually sign it.
On Wednesday, the Fed meeting is scheduled. The market is 100% confident that the US rate will be cut by another 25 basis points.
That’s all for now. Stay positive and keep an eye on developments.
