Wall Street bank numbers will also be highly influential. That issue is likely to dominate all markets at least at the start of this week and generally lead to a return to a risk-off strategy among investors. The one caveat to the pessimistic short-term view is if the major US corporations scheduled to release 1Q12 data this week, especially the big banks, manage to sustain a positive-surprise momentum, then the Spanish concerns may be filed away for another day.
Risk-on, risk-off pendulum affects Russia. For Russia this week, the dominant driver will continue to be the trend in global market sentiment and the position of the risk-on, risk-off pendulum. But while that provides the backdrop, there are a number of specific events that will affect relative performance. Specifically, these are the expected weaker oil price, a positive trend in March macro indicators, and continuing preparations for the government transition.
Oil is expected to ease after a relatively positive UN-Iran meeting. The meeting between Iran and the UN concerning the Iranian nuclear program was much less confrontational than previous engagements and has led to raised hopes that a deal can be reached at the next meeting in late May. If this were to be actually realized, it could lead to a delay in the sanctions extension and, therefore, more oil. The analysis of the weekend meeting is likely to be fully exploited by Saudi Arabia in its effort to try to bring the price of Brent back toward the $110/bbl level that it views as more sustainable longer term (for details, see our story in last Friday's Russia Market Daily). Brent is therefore more likely to ease back toward the $115/bbl level, which would increase pressure on the ruble exchange rate and the banks, although the greater driver of bank shares this week is expected to be the reaction to the results from the big Wall Street banks. The price of 1m Brent eased down 1.8% last week to end at $121.2/bbl. The ruble did not react, staying flat against the dollar and losing 0.6% against the euro.
March macro indicators may affect domestic themes. As set out in our "This Week" comment below, the State Statistics Service is scheduled to release the March macro report this week. The recent cautious outlook for 2012 growth from the Economics Ministry has raised concern that expected earnings growth in domestic-theme sectors may be more muted than previously hoped for. If the numbers to be released this week side more with the optimists, that should help the investment case for sectors such as retailers, media, mobiles, transport, real estate and banks.
Question mark over utility tariff timing. One of the big question marks is hanging over the utilities sector and, specifically, whether expected tariff changes will be approved. That issue, along with the prospect of tax changes in the extractive industries, is likely to be one of the topics addressed very early by the new government. On one hand, keeping inflation low is a key economic priority. On the other, there are several utility companies on the privatization list and funding of future capex spending is a key valuation parameter. That question mark is unlikely to be answered until sometime in the summer.
Egypt instability may affect VimpelCom Ltd. The other event to watch this week is the political uncertainty in Egypt. If the row over the exclusion of 10 candidates from the forthcoming presidential election escalates, then the Middle East risk factor may again be a driver of the oil price. VimpelCom Ltd (down 2.4% on Friday in the ADR market, while MTS fell only 0.3%) is the most exposed Russia name.
Mechel. Another stock movement from Friday to note is the 0.7% gain for Mechel ADRs. Usually when Wall Street has a bad day on global risk concerns, Mechel is one of the worst-performing stocks. That makes Friday's move at least curious.