Russian Daily Monitor

Money market

On Tuesday the dollar weakened further against the euro on the back of
soft U.S. retail sales figures and signals from the U.S. Federal Reserve
that the last of its rate hikes is in sight. The dollar
,s slippage allowed
the rouble to gain ground on the greenback, which closed at RUB 28.65.
We expect dollar dynamics remain volatile in the near term, not only as a
result of global dollar movements, but also due to short-term shifts in
the Central Bank
,s exchange rate policy. The figure to watch on Wednesday
is the U.S. trade balance for October. If the trade deficit widens, the
greenback
,s fall is likely to continue.

Eurobonds

Neither the U.S. Federal Reserve
,s decision to lift its key interest rate
to 4.25%, nor the accompanying statement suggesting its rate hikes would
come to an end soon, came as a surprise to the market. However, the Fed
,s
statement left open the possibility of few more rate increases to counter
inflationary pressure from elevated energy prices and increased capacity
utilization. Weaker-than-expected data on U.S. retail sales, released
Tuesday, also provided support for bond market investors. On the whole, we
retain our neutral position on the Russian Eurobond market in the
short-term.
On Tuesday, Russian Eurobonds, partly mirroring volatility in U.S.
Treasuries, saw only slight price movement on the day. The yield of
Russia
,30 added 1 bp to 5.71%, while the yield of 10-year UST fell 1 bp to
4.54%. The EMBI+ Russia spread offered no surprises, clocking in at 115
bp, climbing 1 bp from Monday.

Equity market

Russian equities continues to advance boldly into 2006 with global
commodities surge, firmer global equities on the back of affirmative FOMC
policy statement yesterday, supportive corporate newsflow all pushing the
RTS index to higher levels. Meanwhile, the trading activity started to
cede (as indicated by the past two days limited volumes) to the end of the
year book squaring. We do not anticipate any meaningful gains till the end
of the year
)after all traders are sitting on some 80% YTD gains and will
be tempted to take profits. On the other hand firm oil prices, stable
rouble liquidity and forward sentiment should counterbalance this desire.
We advise to stay with oil names which are likely to be defensive on the
back of oil price gains even if the wider market softens