According to Monday's results, the Russian stock market is closed in the red zone, given the negative dynamics in foreign markets and the constant threat of sanctions. After the session, the Mosbirzhi index was 2393.81 points (minus 0.4%), the RTS index – 1114.75 points (minus 0.59%).
For the first time since the middle of last year, the euro fell below $ 1.13, and the risk of continuing the negative trend. The single euro currency continued to decline on global markets, taking into account the negative expectations of the development of the situation on the Italian budget. On Tuesday, the deadline for the Italian government to submit a new draft budget for the European Commission for 2019 ends. If the key parameters remain unchanged and the Italian government does not want to compromise, Italian government bonds and the European currency may be subject to additional pressure at least until the next target date – on November 21, when the European Commission will publish a formal decision on the draft budgets of all EU countries
The Fed lowers the balance
Another negative factor for the single European currency position in the short term may be a further decline in the EU's economic moods. As expected, the ZEW Institute Sentiment Index, which will be published on Tuesday, will reflect the decline in business activity in Europe. On the other hand, the US dollar supports expectations for strong inflation statistics in the US in October and the fact that the next decline in the Fed's balance sheet. The US base rate in October (data to be published on Wednesday) is expected to remain 2.2% year-on-year, while overall inflation will be moderate to 2.5% per year (2.3). % in September). Against this background, market expectations will strengthen in order to further strengthen the Fed policy, which will increase interest in dollar assets. An additional dollar support factor is another reduction in the Fed's balance sheet by USD 17 billion (Thursday, November 15th), which is equivalent to a drop in dollar liquidity. In the last ten months, when the open market operations in the Fed dropped, the dollar is tending to strengthen. The combination of these factors will lead to the euro staying below $ 1.13 a week.
Oil support for rubles
The Russian ruble, on the basis of trade on Monday, partly withdrew Friday's decline due to the renewed oil prices in the main markets. Brent contracts rose after Khalid Al-Falih, the head of the Saudi Arabian Ministry of Energy, announced plans to reduce the production of oil by the government in December by 500,000 barrels per day (b / s). The US dollar exchange rate at 19:00 Moscow time was 67.74 rubles, which is 27 kopecks below the end of the previous trading session. At the same time, the value of the euro was 76.18 rubles, reducing by 85 kopecks. In general, the Russian currency is likely to remain under pressure in the near future, as well as in other currencies of developing countries.
The dollar's fostering factor in world markets will keep appetite for suppressing risky assets. Moreover, increased risk of sanctions will continue to adversely affect the dynamics of rubles. Oil market risks remain.
The tax period starting from a week (on November 15, it is planned to pay insurance premiums), in our opinion, will provide only limited support to the national currency with moderate negative external origin. As a result, the dollar can be traded in the 67.2-68.2 zone this week.
Oil prices show an increase in the correction. A meeting of the OPEC + Ministerial Monitoring Committee took place on Sunday. The Committee noted that in view of the current uncertainties on a number of issues, in 2019, supplies could rise faster than global demand.
Market participants will focus on OPEC monthly reports (Tuesday) and the IEA (Wednesday), this week. The impact of the "Iranian factor" on the supply-demand balance will have to be assessed on the market, taking into account the countervailing actions of Saudi Arabia and the Russian Federation. If there are no signs of lack of raw materials on the market, pressure on prices may resume. Brent crude oil in the short term will range from $ 70-72 per barrel.
At the moment, there is almost no reason for a positive dynamics for the market. Sanctions risks are still rising, and the oil market has not recovered from corrective moods. The Mosbirzhi Index Criteria for this week will be 2360-2440 points, in the RTS index 1100-1130 points.
Denis Davydov, Chief Analyst at Nordea Bank