Stock indexes blooming, commodity markets entering a super cycle

Incredible Walt Disney and the US Index Rally

This week, US investors listened to the rhetoric of Fed Chairman Jerome Powell at the Economic Club of New York. He expressed concern about the situation in the US labour market. The head of the US regulator said that the recovery may take many years. But there was also an incentive for investors in his speech: the Fed intends to wait for inflation at 2% per annum before curtailing monetary stimulus. This means that zero rates will remain in place for some time. By the end of the week, this was positive news, which strengthened the positions of US stock indexes.

At the end of the week, the Dow Jones, S&P500, and Nasdaq remained in the black. All three of America's major stock indexes are trading at their all-time highs. The volatility in the American stock market has subsided, and the main focus of the market is on how soon Biden will accept the promised package of assistance to the country's economy of $1,9 trillion.

Among the interesting corporate events in the US market — the reporting of Walt Disney, which again showed a strong financial result, although the forecasts were negative. The company's stocks have doubled in value over the past year, thanks largely to the streaming platform tripling its number of subscribers amid lockdown conditions. Paradoxically, Walt Disney was able to increase its capitalisation in the face of the complete closure of its amusement parks, with closed cinemas around the world and the curtailment of some of its projects.

Yaroslav Kabakov, the strategy director of Finam IC, comments to Realnoe Vremya:

'The general conjuncture of the US stock market is now determined by the expectation of the stimulus package that Biden promised. And the positive reporting of the largest companies allows investors to stay in long positions, they are not in a hurry to record profits yet. Despite that stock markets have now reached highs, as such, there is no rush to correct. We can certainly stay at the current levels in the near future. Some stories, of course, will be played out — and this is happening locally. But if investors wanted to take their profits and urgently leave the market — then it would be quite possible to use the current conditions for this already. So the potential for growth of quotations is still there — however, it is already fading. Some investors, of course, are concerned about this circumstance and the future prospects.'

Nabiullina's Brooch: a point in the 'pigeon' messages

On Friday, the board of directors of the Central Bank of the Russian Federation again decided to keep the key rate at 4,25%. This is not a surprise for the markets. In its release, the regulator says that demand is recovering faster and more steadily than analysts expected. The Central Bank believes that the inflation expectations of businesses and the population are still high. There is some recovery in the financial and commodity markets, and the Russian Central Bank is confident that it is possible to thank vaccination for this.

All this, according to the regulator, suggests that the risk of inflation falling below the acceptable level no longer looms on the annual horizon. So the Bank of Russia's inflation outlook for 2021 was raised to 3,7%-4,2%, and there are no prerequisites for further easing of monetary policy yet. It is unlikely that the Central Bank of Russia will continue to reduce the key rate in the near future.

The rhetoric that the regulator sees the potential for further rate cuts disappeared from the release of the Central Bank of Russia. As if confirming the end of the 'pigeon' period, Elvira Nabiullina decorated the lapel of her jacket with a very eloquent brooch in the form of an ordinary dot. Perhaps this signals, 'Enough. We will not lower the rate again.'

Yaroslav Kabakov believes that Nabiullina's message provided some support to the ruble quotes:

'To some extent, the end of the soft monetary policy, which Nabiullina announced, will support the ruble in contrast to other expectations (for example, foreign policy). But there is no direct correlation between the ruble exchange rate and the strengthening oil. The ruble will start to win back high oil prices, when exporting companies will increase export revenue. But the potential for strengthening the national currency is present, we think.'

So far, it is possible to see that this week the ruble has risen against the dollar by 0,4% (the rate is now 74 rubles per dollar), the euro rate remained almost unchanged and on Friday the trading stopped at 89,49 ruble.

Lavrov's words did not become a brick on the neck of the ruble and the Russian stock market

In the Russian stock market, we are under pressure from potential sanctions — the entire European Union is discussing the expulsion of diplomats and the trial of Navalny. There are geopolitical risks, according to many experts. And we are seeing an outflow of capital from the Russian market, which has been recorded for the first time in 16 weeks (and this put pressure on Sberbank shares, which sank this week). But it's not that bad. We do not see a sharp drop in stock indices. By the end of the week, the oil and gas sector was trading higher than expected: Rosneft, Gazprom Neft and Gazprom. Among the non-resource companies, Magnit shares are doing well.

As for the harsh rhetoric of Sergey Lavrov, who in the middle of the week said that Russia could cut ties with the EU at any time, then, contrary to the expectations of the most nervous investors, this did not bring down the market, and even the euro did not rise against the ruble.

Yaroslav Kabakov explains this by that nothing terrible was said in general, and a new round of sanctions is unlikely to go through the entire Russian economy. Most likely, these measures of the European Union will once again be personal:

'To a certain extent, we see that there is an attempt to smooth out the foreign policy conflict and somehow stop the problem of protests. Lavrov's rhetoric in the press was slightly exaggerated. But it seems to me that they will try to smooth out this statement now. And, by the way, nothing extraordinary was said. It is clear that if the European Union imposes tough sanctions, for example, on the circulation of capital in euros, then we will cut them gas off. Everyone is well aware that the stakes for further development are also quite high. There are risks, of course. And if there are sanctions — they will be targeted at specific individuals: someone will be banned from entering the EU states, someone may freeze their accounts. On the other hand, there is the problem of Nord Stream 2, although Germany does not want to link it with everything that is happening...'

Has a new super cycle started in the commodity markets?

Oil prices continue to win back the coronavirus collapse. On 13 February, Brent futures prices crossed the $62 mark for the first time in a long time. In general, we see further growth in commodity markets. Compared to April 2019, oil is three times more expensive, sugar has reached a four-year peak this week, nickel and platinum — at the highest in the last 6 years, cobalt updated two-year highs, copper — eight-year.

'Why is oil growing?' the specialist of Finam Group comments. 'This is facilitated, first, by the shortage of oil in the markets. The industry is recovering, OPEC directly continues to say that in 2021 there will be a deficit, the peak of which is planned for the month of May. Second, we are seeing a rapid recovery of the industry, despite the lockdown. Even in these conditions, the economy is beginning to recover more quickly than expected, even though restrictions are not yet lifted everywhere and not for everything. Plus, the expectations of the transport tourist flow, of course, now stimulate the purchase of oil by oil traders in the future.'

By the way, JPMorgan analysts state the fifth wave of the commodity markets' super cycle over the past 100 years. The rise in commodity prices, according to experts, will continue further — it will be supported by the recovery of the economy after the pandemic and ultra-soft monetary policy in global economies. Both the weakening of the US dollar and the impact of the environmental agenda contribute to the strong positions of commodities. The last raw material supercycle so far was observed from 1996 to 2008.

Yaroslav Kabakov says:

'Rising commodity prices can create an imbalance in strong economies but, at the same time, will give an incentive to the development of developing economies — such as Brazil, India and, of course, Russia.'