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Is this rally tradable?


The global slowdown has several more quarters to run, and so we do not see the advances as the start of a new cyclical bull market. In fact, we doubt that it will be seen as a tradable opportunity. Aside from the policy decisions at last week's EU summit (which, even if a positive surprise against depressed expectations, were rather shallow), there has not been any positive news. If anything, global macro data continued to point to a further erosion of growth momentum (21 out of 28 PMIs are below the neutral 50 mark). One could regard the current jump in risk assets as investors cheering the more imminent policy intervention; however, as last year's experience suggests, a definitive intervention tends to happen at a greater level of stress. If anything, the current bounce in risk appetite makes such intervention less likely. Meanwhile, economic data and the upcoming earnings season might well provide fresh ground for disappointment. We continue to advise defensive positioning, expecting the bottoming process to continue into early autumn.

As for the price action on the Russian equity market, a sharp reversion in the rouble offered a stronger footing to Banks, which gained 5% on average. Overall trading volumes in Russia stood at USD 4.9bn (1.9 x 1M ADTV). As we go to print, Asia is trading in positive territory, adding 0.3% on average. Oil (dated Brent) is consolidating at USD 100/bbl. EUR is at 1.259; Gold is at USD 1,616/oz. As for the global agenda, today watch the PMI service data from Europe – France and Italy are likely to remain below the waterline, with Germany floating just a hair above 50; there are also Eurozone retail sales and Italy’s 1Q12 deficit to be published. The US markets are closed.

Alexey Zabotkin, Sergey Galkin, Ilya Piterskiy, Anastasia Markina
VTB Capital analyst

Europe, crisis, oil, USD, ruble

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