Interactive Brokers senior market analyst Steven Levine provides some insights into Russia’s flagging economy, amid slowing manufacturing and services sectors, as well as lower inflation and cheaper oil prices. Against this backdrop, the Bank of Russia will decide on its next key rate, after electing to cut rates five times in 2019.
Produced on January 31, 2020
Market participants in the week ahead will receive some critical updates on Russia’s economy, while the Bank of Russia is on tap to announce its next monetary policy decision after cutting its key rate in mid-December. The pace of growth in Russia is widely expected to slow, amid a sluggish manufacturing sector, slowdown in services, as well as heightened uncertainties over oil prices. The country’s flagging industrial landscape, for example, has been largely due to challenging demand conditions, fewer new order inflows, as well as waning business confidence. Moreover, while companies have been thinning out their labor force over the past five months, they have also been under pressure from higher costs and intensified competition. IHS Markit highlighted that although December’s rate of contraction in the manufacturing industry was the slowest since August, the quarterly average for the final three months of 2019 marked its weakest performance in more than a decade.
With growth in Russia’s services sector also losing steam at the end of 2019, analysts at IHS Markit expect GDP to ease in the fourth quarter to 1.5%. The estimate seems to agree with the International Monetary Fund’s latest outlook for Russian growth in the same period. Meanwhile, more dovish monetary policies and easing measures across several global central banks, including the Federal Reserve, the European Central Bank, the People’s Bank of China, as well as the central banks in Turkey, Brazil and Russia, seem to be partly responsible for the IMF’s optimism about its annual growth outlook through 2021. In fact, the Bank of Russia cut rates for the fifth time in 2019 at its latest meeting in December, with a primary aim of stoking a recent, significant slowdown in consumer prices. This has been largely due to a glut in food supplies, appreciation of the ruble, and lower inflation – in general – among some of the nation’s top trading partners. Russia’s central bank anticipates its course of monetary policy will spur inflation to between 3.5–4.0% by the end of this year and keep annual consumer prices close to 4% going forward.
Naturally, Russia’s economic growth is also largely reliant on energy prices, as well as the costs of certain basic materials. However, despite OPEC+ countries having reached a deal to extend oil production cuts until the end of March this year, fears about global growth demand – especially in China, amid the outbreak of the novel coronavirus – has spurred oil prices lower while pushing down the stocks of some major state-owned Russian oil companies, such as Gazprom and Rosneft. Against this backdrop, investors in the week ahead will receive fresh figures on Russian manufacturing and services from IHS Markit on Monday and Wednesday, followed by updates on consumer prices Thursday, then the Bank of Russia’s key rate decision ahead of the weekend.
In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more. I’m Steven Levine for Interactive Brokers, asking you to enjoy the week ahead.
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Author Security Holding: No Positions
The author does not hold any positions in the financial instruments referenced in the materials provided.
There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.