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The rally stalls


Market participants’ bullish mood, which was a major driver for the advances earlier this week, has finally evaporated. Yesterday’s service PMI data, which for the major Eurozone economies has remained below the waterline, brought no positive surprises. Moreover, the only operational engine of the region, the German economy, continued to indicate that it is running out of fuel as the latest service PMI symbolically slipped below the 50 mark to 49.9 (from 50.3 in May).

Meanwhile, the other macro data from the EU was also discouraging, with May retail sales missing expectations (-1.7%YoY vs. -1.0% survey) whilst the unemployment rate crept higher to 14.9% (from 14.3%). The data increases the likelihood of the ECB deciding to cut rates today, but the absence of US investors and the lack of visibility of more scalable QE-style stimulus (while markets have already priced in a good chunk of a potential liquidity injection) stopped global markets from making further advances.

Russian equities followed suit, seeing a moderate trading session with little change to headline indices. However, volumes were reasonably strong – at USD 1.8bn (0.8 x 1M ADTV) – despite the US market being closed.

As we go to print, Asia is trading in negative territory, declining 0.2% on average. Oil (dated Brent) is edging marginally higher after the overnight retreat below USD 100/bbl. EUR is at 1.253; Gold is a hair below USD 1,617/oz.

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

PMI, Europe, Asia

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