Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Fed and OPEC Could Relieve Market Jitters

Russian markets breathed a sigh of relief at the end of last week after key economic data indicated that the U.S. economy would avoid a downturn, for now.

On Friday, the U.S. payroll report announced the creation of 130,000 new jobs in the first three quarters of 2006, realizing analysts' best-case scenario. Payroll numbers lower than 100,000 would have confirmed suspicions of a U.S. slowdown, whereas more than 130,000 new jobs would have encouraged the U.S. Federal Reserve to hike interest rates at a policy board meeting scheduled for Tuesday.

Either scenario could have led to a slump in the Russian market, and this week investors face two more hurdles.

A gloomy analysis from the Fed or a weak commitment from the Organization of the Petroleum Exporting Countries on Thursday to cutting oil supplies could herald the market correction analysts have been expecting.

"Our clients were getting worried that the market was overbought and were waiting for some near-term correction. They are waiting for some signal to take a pause," said Alfa Bank strategist Erik DePoy.

The U.S. indicators gave no such sign, but investors remained jittery after a 14-day growth streak, as both the Fed board and the OPEC meeting have the potential to spark a sell-off.

By Friday's close, crude oil prices in New York had risen to $63.46 per barrel in response to colder weather and the implementation of supply cuts that the OPEC announced in October. As long as crude prices remain above $60 per barrel, the OPEC is unlikely to curb production any further until spring, when the price of oil traditionally drops.

Russian analysts said they hoped that OPEC producers would make a strong commitment to cutting output if prices sank below $60 per barrel. Russia counts on high oil prices to buttress its economy.

Analysts said they expected no change in interest rates from the Fed meeting, but were looking for signs in the accompanying policy statement.

To prevent a downturn, investors are looking for U.S. interest rates to fall by 0.75 percentage points in the next six months. Last Tuesday, Fed chairman Ben Bernanke said he intended no such cuts, but U.S. markets ticked upward regardless.

However, if Tuesday's policy statement promises to keep rates static or even increase them, as Bernanke suggested last Tuesday, it is unclear the market will be bullish enough to ignore him again, analysts said.

The Central Bank raised interest rates 0.25 percentage points Friday, the fourth hike this year. The Bank gave no reason, but analysts view the policy as a means to control inflation.

Wimm-Bill-Dann (WBDF) on Friday released an impressive third-quarter report, with net income doubling year on year on the back of higher food prices and the ruble's strength against the dollar-euro basket. Retailers buy dollar-priced goods abroad and sell them at home for stronger rubles.

On Friday, MDM Bank spotlighted Russia's food retail sector, which has seen 16 percent yearly growth. "Already one of the world's 10 largest food retail markets, Russia offers high growth, attractive margins, massive expansion potential and relatively low levels of competition," Kim Iskyan, head of research at MDM Bank, said in the note.

Sedmoi Kontinent and X5 put in bids to buy Kopeika from UralSib bank last week. Such consolidation in the sector should further encourage foreign investments and acquisitions, Iskyan said.