Daily Review. 2nd November, 2009

Domestic equities moved lower after Friday’s opening, driven by a downswing on European exchanges and falling oil prices, and more negativity rolled in from a pullback in US benchmarks at the open and worse-than-expected economic data out of the United States. As a result, the RTS Index skidded 2.08% and the MICEX Index sank 4.24%.

A retreat in crude prices was the main reason for a retreat in O&G plays, as Gazprom slid 4.5%, Rosneft plunged 4.3% and Lukoil plummeted 4.7%. Banking names lagged slightly behind the market, with Sberbank pulling back 4.5% and Bank VTB decreasing 5.7%. Steel makers followed the market, but mostly outperformed, as MMK was down 2.1%, NLMK lost 2.5% and Severstal plunged 4.6%.

Bearish trends again held sway on the US stock market Friday, with the benchmarks losing more than 2.5%. The main negative factor was a decline in consumer spending for the first time in five months. Asian markets are also lower this morning as prices ease on commodity exchanges. Additional negativity came from news that CIT Group, a large US financial company, went bankrupt. Crude futures corrected down slightly on a strengthening dollar, with Brent contracts currently trading around USD 75.80 per barrel.

We think Monday morning’s news flow is ambiguous for the Russian stock market. After steep losses Friday domestic plays could experience an upswing, which could be backed by rising US index futures, although bearishness on Asian exchanges will put pressure on the market. If the upturn in oil prices continues, this could drive not only O&G plays, but also the market as a whole. US construction costs, due out at 6 pm Moscow time today, could also impact market sentiment.