Russian markets re-opened on Tuesday after the country’s nine-day New Year’s hibernation holiday. Boosted by an improvement in global sentiment, the Micex index rose 2.7% in its biggest one-day gain since mid-September. The rouble appreciated 0.3% against the dollar euro basket. Meanwhile, the oil price is also rallying with the price of Russian Urals crude hovering around $110/b — its highest price since September. Russian equities are still the poor cousins of global markets, trading at a big discount to European and many emerging market peers.
This longstanding gap persisted throughout 2012, despite some positive factors: high oil prices, reasonably strong economic growth (the increase in GDP is expected to come out at over 3%) and the end of political uncertainty surrounding the March 2012 presidential elections. One report, released recently by the state-owned Russian Direct Investment Fund, Ernst & Young and a research centre at Moscow state university, indicates that Russian capital outflows are not actually as large as reported. However, Russia’s capital outflows are still significant, compared with most emerging markets that usually register inflows. Russia’s current account surplus in recent years, due to favourable oil prices, might have been a factor buffering concern about the country’s capital outflow.
In December, inflation reached 6.6% from a year earlier, slightly above the central bank’s target, but lower than market expectations. Food inflation made a small step up to 7.5% on an annual basis, after staying at 7.3% for three months. It is expected that the base effects will remain effective through April 2013, pushing the year-ago inflation mrate higher. Another wave of excise tax increases — mainly alcohol, tobacco and gasoline — from January this year may also add to the year-ago inflation rate at the mstart of the year. According to JP Morgan (11 January 2013), in December the manufacturing PMI fell sharply to 50.0 from 52.2.
All the key components weakened, with output (to 50.6 from 54.6), export orders (to 46.5 from 50.9) and employment (to 46.9 from 49.8) experiencing big declines. New orders, however, were slightly more resilient (to 52.1), while inventories were reduced somewhat, which suggests that manufacturing is not on the verge of contraction and that output is likely to continue growing, albeit at a much slower pace in the coming months. After this decline, the manufacturing PMI has become more aligned with the hard data on output. Despite the positive signals from the PMI survey this fall, where the index averaged 52.5 from September to November, the industrial production index growth in fact slowed to a mere 0.5% on a quarterly basis.
A fall in the rail cargo load in December, the first decline since 2009, is another sign that the industrial sector is slowing. Along the same lines, business confidence in the industrial sector deteriorated visibly in December, with confidence in mining and quarrying dropping most notably. Manufacturing appears to have remained more resilient, declining only modestly. Business activity in services has remained more robust, decreasing only slightly to 56.1 from 57.1, according to the services PMI survey.