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. Last Updated: 07/27/2016

Skeptics See Trouble Looming for Markets

Employment data out of the United States gave markets a badly needed bit of respite Friday, easing fears that a U.S. recession was at hand, but it did not dispel fundamental worries that Russia's eight-year run of unprecedented growth might soon be winding down.

The February unemployment rate in the United States inched down to 4.5 percent, as 97,000 jobs were added to the nonfarm payroll last month. The U.S. Labor Department also revised its previous figures, announcing that 146,000 new jobs were created in January, a 35,000 increase on its earlier estimate.

Because the United States represents about 30 percent of the global economy, a U.S. recession would have made a global downturn all but unavoidable. Analysts said much had been riding on the payroll data. After last week's discouraging U.S. durable goods numbers, which got much of the blame for fueling the $3 trillion global sell-off of the past two weeks, Friday's data had the potential to snuff out the last bits of market optimism.

"The market was bracing itself for much worse," said Alfa Bank strategist Erik DePoy. "The fact that it's in line is a real palpable sense of relief."

That much was clear from the performance of local markets, which saw daily gains of 2.8 percent on the MICEX and 2.3 percent on the RTS at Friday's close. The day's combined liquidity was a robust $2.6 billion.

But analysts did not believe the storm had passed.

"I would tend to agree that by no means is the correction over," said Kim Iskyan, co-head of research at Uralsib. "Usually, corrections are a bit longer and a bit sharper."

A report released Friday from Emerging Portfolio Fund Research, a U.S.-based company that tracks capital flows to emerging markets, showed how sharp the correction has been. It found that in the five days ending Wednesday, $225 million were withdrawn from Russian and CIS funds, the largest pullout since last June, when the RTS index lost about one-third of its value. The three-day rally ending Friday only made up about 4 percent of the 13 percent lost on the RTS in the past eight days of trading.

Alfa Bank's technical analysis, which tracks mathematical patterns in the market, said the partial recovery looked like a trap. The bank advised investors Tuesday to sell off long-term investments when the RTS climbs back up to 1850, because after that a new and deeper slump is likely to ensue. The index closed Friday at 1809 points, after gaining 42 points on the day.

"The likelihood of the resumption of a spring rally in the medium term is now very small," said the Alfa Bank note that followed the analysis.

Long-term forecasts have also been more sober after the recent wake-up call.

"The good times are set to run, but aggregate stock market performance will likely be less impressive, volatility could mount and there is a decent chance we are heading into a bubble, with now being around the time when, looking back, we might say it started," a UBS report released Friday said.

A tightening of global liquidity is now the biggest fear for many analysts, especially since Japan, the biggest source of global liquidity, raised its interest rate to 0.5 percent last month. The European Central Bank underscored this trend Thursday by raising its prime lending rate to 3.75 percent.

Central banks in the world's biggest economies have been ratcheting up rates since 2004, making it more expensive and more risky to borrow money for investments.