Russian Daily Monitor

Money market

On the back of relatively poor U.S. data the euro continued to float
around USD1.205 on Monday, keeping the ruble-dollar rate between 28.66 and
28.70.
The general trend still seems to favor the dollar, in spite of anticipated
appreciation by Asian currencies against the greenback. According to
forward contract prices, the yaun is set to appreciate 4.7% against the
U.S. currency in year from now. The likely strengthening of the euro
against the dollar on the back of the Chinese exchange rate reform should
prove even less pronounced. If the U.S. economy continues to post signs of
solid economic expansion, the dollar is likely to outbid the European
currency.
On Tuesday, consumer confidence figures due for release in the United
States may confirm the upbeat trend in the dollar, which should push the
greenback higher against the ruble. Germany
,s IFO index is worth watching
as well. A slight recovery of business activity anticipated in the largest
economy of the European Union could offer the currency support.

Bond market

Suffering from a liquidity squeeze ahead of tax payments and a continuing
surge on the stock market, the rouble bond market slightly went down on
Monday amid notable trade volumes. Losses in the corporate sector were
evidenced by UES bonds (-2.5%), TNK (-0.4%) and Uralsvyasinform (-0.2%).
We see the liquid first tier as retaining the most downside, with a risk
that liquidity tightening in the short term could spark a correction. In
the medium term, the downturn on the rouble bond market may be enhanced by
yield expansions in local eurobonds.
The Russian Eurobond market continued to follow the benchmarks with all
fixed-income markets currently focusing on U.S. GDP data for the second
quarter, scheduled for release on Friday. Consensus estimates promise 3.5%
y-o-y, down from 3.8% y-o-y in 1Q2005. Friday
,s data stream will also
include Chicago PMI for July, expected to conform to the upward trend in
U.S. business activity that has emerged recently. Thus we believe bearish
sentiment should dominate and yields will continue to rise.
On Monday, the EMBI+ Russia index tightened to 146 bps losing 1 bps on the
day. The yield of the indicative Russia
,30 went up by 1 bps to hit 5.73%,
while the yield of 10-year UST added 2 bps clocking in at 4.25%.

Equity market

Russian equities continue to sell like hot cakes, with the frenzy around
Sberbank and Novatek spreading into other papers. The crowd effect is
ensuring surging growth on the RTS, which stopped less than 1% short of
its all-time high of 785.5 points. We believe the market is determined to
beat that record this week, hoping to forget the unpleasant things that
happened after that record was set in April 2004.
The RTS
, new longer working hours (from 10.30 to 18.45 since Monday) might
also be contributing to the bullish sentiment
) although it is just one
more sign of an unusually active July. Meanwhile, the extension of the
trading session has allowed the exchange to introduce a futures contract
on the RTS index, to be presented to investors in Moscow on Tuesday.
Oils and consumer stocks have demonstrated strength of late, but other
sectors should catch up. In metals, we would single out Norilsk Nickel,
Mechel and Severstal..
However, trading volumes moderated on Monday and growth was not uniform.
RTS growth was again mostly driven by Sberbank, which jumped another 3.9%
(its prefs climbing 4.7%). Gazprom locals and ADSs added 0.7% and 0.4%
respectively on continued revaluation after the Novatek IPO.
Surgutneftegaz
, share price grew by 0.5% -- still a laggard in the Russian
oil&gas sector, with an YTD-change of just 5.7%. Meanwhile Novatek gained
further 1.5% in London on Monday.
Despite a downward tendency on the oil market in the medium run, crude
rose on Tuesday for technical reasons, with the Brent up 0.5% to close USD
57.85/bbl.