Russian Daily Monitor

Money market

The money market is likely to continue to feel the pressure from the
current liquidity squeeze, which is digesting the money outflow from past
tax payments. The MosPrime 1M rate continues to float around 6%, while the
overnight rate stands at 8-9%. We expect tight liquidity to remain in the
coming days.
The U.S. economy again proved to be strong enough to push dollar up
against the euro. With new evidence of solid consumer demand, we would not
rule out further dollar strengthening against the rouble in the coming
days. However, FX dynamics are likely to show considerable volatility on
the back of forthcoming data releases in the United States.

Eurobonds

Expectations of weakening in the U.S. economy raised after Monday
,s data
on tumbling home sales appears to have been a little premature as
Tuesday
,s releases showed impressive strengthening in consumer demand,
including stronger durable goods orders, new home sales and consumer
confidence. This raised the market
,s expectations of interest rate hikes
in March to bring the federal funds target rate to 4.75. As Russian
Eurobonds appear unlikely to be traded on local factors - all major
factors appear to have been priced in and there is no noticeable upside or
downside on the horizon -- U.S. Treasuries yield expansion should push the
yield of Russian papers up as well. However, this week
,s data releases,
including Chicago PMI and the Beige book due on Wednesday, followed by ISM
manufacturing on Thursday and Friday
,s payrolls could alter expectations.
At the moment, we do not rule out further yield expansion on the Russian
Eurobond market, which is expected to remain volatile.
On Tuesday, the yield of Russia
,30 added 5 bps to 5.53%, while the yield
of 10-year UST expanded at its fastest pace for the past three weeks to
hit 4.48%, up 8 bps from Monday. The EMBI+ Russia spread saw a mere 1 bps
contraction to 104 bps.

Equity market

The Russian equity market looks set to drift sideways on Wednesday on thin
newsflow and mixed performances from Russian ADRs and GEM indexes. And
support is unlikely to come from oil prices pressured by warm weather and
swelling stockpiles: the indicative Brent price shrank 1.24% to hit USD
52.7/bbl on Tuesday.
Investors appeared to lose their appetite for Russian equities on Tuesday.
Heavyweights showed directionless dynamics, with Lukoil and RAO UES adding
0.18% and 1.99% respectively, while the rest of the blue chips lost 1- 3%.
The benchmark RTS index closed 0.47% down as a result to hit 1034.91.
Russian ADR trading in New York mirrored that in Russia and was nothing to
write home about.