At Monday’s opening on 11.08, the Moscow Exchange index jumped almost to 3000 points. However, it fell slightly short and is now correcting, staying within 2975 points.
What Happened?
As mentioned before – we’re making peace again. On 15.08, presidents will meet in Alaska to discuss possible ways to end the conflict. Against this backdrop, the information space is in complete turmoil. There are enormous amounts of rumors circulating for every taste. It’s clear that the market remains highly volatile, and movement is inseparable from the political agenda.
Regarding the situation, I believe it will end with approximately nothing. Against this background, we could move even higher. In theory, it’s now possible to reach 3100-3150 points. But will growth continue further?
It’s worth remembering that there are now even two unclosed gaps on the market – one from 07.08 (the index “jumped” to 2835 points) and from Monday’s session. The probability of closing the latter has increased. It turns out that one of the possible scenarios is as follows: the index returns to approximately 2900 points, then a reversal is possible and new growth above 3000 points.
Later, closer to the end of the week, we move higher, and following the actual meeting and some agreement, profit-taking begins and a new wave of decline. This is just an assumption and one of the scenarios, because, as you understand, there’s nothing 100% certain in such matters.
USDRUB continues to stand still. The current rate is at 79.8. Last week there was zero change, although there was a retest of 82.6 rubles at one point. The Ministry of Finance published budget data, and everyone was disappointed. The deficit for 7 months was 4.88 trillion rubles (2.2% of GDP).
Why Is This Bad?
- Last year the deficit was slightly over 1 trillion, now it’s 4 times higher.
- The planned deficit for the entire current year is 3.79 trillion, meaning the Ministry of Finance has already “exceeded” it.
- Growing deficit reduces the likelihood of rate cuts, since covering it is an inflationary factor.
In other words, either we need to urgently cut spending (this could be done by ending the conflict, which is unlikely for now), or increase revenues (for example, through increased oil and gas sales, which is also unlikely at current oil prices). There are also so-called non-oil and gas revenues, but there’s a big question there too.
The third option is to cover the deficit by increasing debt. And this means inflation growth. Consequently, the rate won’t be cut so eagerly.
Bottom line: the economy continues to slow down even more. Everyone sees this, including, by the way, “the other side” with which we have to negotiate.
Regarding currency, the Central Bank released another Financial Markets Risk Review. And here’s what’s interesting: in May, the ratio of net foreign currency sales to export revenues of 29 major companies fell to 86%. This could mean that currency sales have decreased. The Bank of Russia also notes a surge in currency demand from legal entities in July. But so far, this hasn’t led to a significant trend reversal.
Global News
Oil prices continued to fall. The market does not believe that Trump will be able to significantly reduce supplies from Russia.
Gold prices, on the other hand, rose slightly, but remain within the 3250–3450 corridor. Last week, Reuters spread a fake story that the US was raising tariffs on imported gold bars. At the end of the week, information appeared that the White House would issue a denial.
EURUSD is at 1.16. Last week the dollar strengthened – at one point the pair dropped below 1.14. However, it didn’t last long. Trump has already pointed to the main candidate for the position of Federal Reserve chair next year. The probability that the US will continue to move rates down is increasing.
