Daily Review. 16th October, 2009

Russian benchmarks turned bearish Thursday, snapping several days of gains on weak Western earnings reports, with the RTS Index dropping 0.48% and the MICEX Index shedding 1.56%.
Most O&G plays moved higher on retreating oil prices, as Gazprom lost 2.2%, Rosneft inched up 0.3% and Lukoil eased 0.7%. Ambiguous financials released by major US banks exerted an adverse impact on domestic financial issuers, with Sberbank plunging 4.1% and Bank VTB sinking 3.9%. Steels, except for NLMK (a 3.9% surge), closed in stride with the market, with MMK falling 2.6% and Severstal dipping 0.9%.

American indices closed in positive territory Thursday, with the Dow Jones Industrial Average adding 0.5%. Rising oil prices were the primary upside driver, which, in turn, pushed up demand for energy stocks. Ambiguous earnings reports from Citigroup and Goldman Sachs left some investors disappointed, which capped upside in these stocks. Asian exchanges look bearish this morning. Financials are among the day’s standout decliners amid weak financials published by a number of American banks. After the release of a higher-than-expected drawdown in US oil inventories, oil prices soared to a new YTD high. Brent futures are currently trading around USD 76.50 a barrel.

We view Friday morning’s news flow as ambiguous for the Russian equity market. On the one hand, weaknesses in Asian benchmarks will put pressure on the market as a whole. On the other hand, a rebound in oil contracts will likely stoke demand for O&G plays. Banking names could lag slightly behind the market today on softer investor interest in financials. News that Inter UES could gain all genco stocks left after UES’ reorganization could spur a rally in this stock. US manufacturing numbers, due out today, are noteworthy.