Macro Russia: November recovery, or just more cold rain?
New issue of Macro Monthly by Macro-Advisory

The latest issue of Macro Monthly, produced by Macro-Advisory, offers analysis of the recent political and economical developments in Russia. Chris Weafer, founding partner of Macro-Advisory, was the invited speaker on the last NRCC Russia breakfast meeting in Oslo in October this year. November issue highlights the following key moments:

Russia gains in World Bank survey. In a rare piece of good news Russia’s ranking in the World Bank’s Ease of Doing Business survey improved to 51 from 64 previously. That was partly because of changes to the survey methodology (expanded) and also because of improvements by Russia in such areas as the cost and time to access electricity supply.
Small macro improvement in September. The macro indicators for September showed tentative improvements, and support the conviction that economic weakness bottomed in July-August. The expectation is that the fourth quarter data, which will start to appear this month, will show further improvement and support optimism for an end to the recession in mid-2016.
Next rate cut depends on inflation. The Central Bank, as expected, did not cut its key rate at the end-October policy meeting. The bank cited concern over the continued high rate of inflation and external threats, such as oil price uncertainty and the consequences of a slowing Chinese economy for global markets.

Consumer inflation is still stubbornly high. Although inflation remained close to 16% at end-September, it is expected to fall to an annualized 12-12.5% by the year end. Confirmation of that trend should allow the Central Bank to cut its interest rate, possibly by 100 bps, at the mid-December policy meeting.
Oil price is expected to drift lower. The price of oil has slipped lower since end-October as traders contemplate the impact the expected return of 500-700,000 barrels of Iranian crude will have during 2016 against a backdrop of slowing Chinese demand. Brent is expected to drop into the mid-US$40’s p/bbl ahead of the meeting of OPEC oil ministers in early December.
Ruble is also expected to trend lower. The greater likelihood is that the oil price will stay in the mid to low US$40’s p/bbl into the year-end, and that is expected to further pressure the ruble exchange rate. We maintain our year-end target of RUB70/US$.
Small technical gain for the equity indices. Russia’s dollar-denominated equity indices rose 5% in September tracking a similarly-sized gain for the oil price. MICEX added less than 1% in trade, which can be best described as a low-volume sideways move.
All quiet on the Western front. October was relatively quiet in terms of news flow concerning eastern Ukraine. The Normandy Group held another meeting and they “appear” to be making slow but steady progress.
Putin’s approval stays near record. The October Levada survey shows that people strongly support Russia’s actions in Syria and the actions of President Putin.
Too early to assess impact of the plane crash. Only when the formal result of the investigation is reported will it be possible to assess the impact on public opinion and the level of support for the actions in Syria.

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