Markets are evidently front running a decisive breakthrough on cutting the Gordian knot of the Eurozone sovereign debt problems. This is indeed a fair excuse for extending the relief bounce, which started in the first week of October, a bit further. That said, even if defusing the ‘new dangerous phase’ of the Eurozone debt crisis eliminates the most acute imminent downside risk, that of the stability of the global financial system, it hardly prevents the cyclical slowdown for 2012 which is driven first and foremost by the fiscal containment in DM, but also by the consequences of the monetary tightening in EM, and malfunctioning political system in the US in particular.
These authors therefore remain firmly of the opinion that market moves shall be considered in the context of the cyclical bear market in equities and other risk assets amidst a cooling global economy. The major test of the accuracy of this assessment will be the ability of stock indices to revert above their respective 200D MAs. Although for the RTS Index that threshold is still some distance away (it climbed above its 50D MA yesterday, but the 200D MA is at 1,814), for S&P500 it is already within striking distance (1,275 vs. yesterday’s close of 1,254) and might well be tested already this week (and if conquered, we would give another thought to our opinion on the underlying trend in equities and the US economy)
As for the performance of individual Russian stocks in yesterday’s rally, all blue chips and most cyclicals finished the day with gains with Rosneft (+5.9%,1.1x), NLMK (+11.9%,1.2x) and VTB (+6.3%, 1.2x) outperforming in their respective sectors. Among defensives, we point out X5 (+9.8%, 0.8x) as a leader and Polymetal (+0.7%, 0.8x, which is driven by technical factors associated with the transaction with Polymetal Intl, see the story on that below). In the less liquid space, we again note elevated demand for the outperformer of recent weeks, LSR Group (+7.3%, 3.2x, +27% WoW) and the weak performance of transportation stocks TransContainer (-0.7%, 0.5x) and NCSP (-0.1%, 1.6x). This morning, Asia is trading slightly in the red: Nikkei is down 0.4%; front S&P 500 futures sliding 0.2%;front Brent is at USD 111.30/bbl, 50 cents above the level at our market close on Monday. Today we expect 3Q11 results from TNK-BP Intl which is an indirect parent of tradable TNK BP Holding, and the 3Q11 operational update from Mail.ru. Among global macro stats we point our October US consumer confidence index.