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. Last Updated: 07/27/2016

RTS Rally Over 2,000 Cheers for Only a Day

The RTS broke through the 2,000 point threshold last week in its biggest one-day gain since July 2006, raising hopes that the markets will recover from what has been a tough couple of months.

The markets were rallying Wednesday in response to the U.S. Federal Reserve's decision Tuesday to cut interest rates by half a percentage point to 4.75 percent. The RTS rose 4 percent to 2,015.4 points, while the MICEX was up 3.7 percent to 1,730.7. Both the local bourses outstripped one-day gains made on the Dow Jones and S&P indexes.

"Wednesday was a unique day when everything was going to go up," said Erik DePoy, strategist at Alfa Bank. "But it was just one really good day."

By Thursday, it already wasn't looking so good.

Although U.S. investment bank Goldman Sachs pleased investors with a surprisingly upbeat earnings report, both Bear Stearns and Morgan Stanley disappointed. Deutsche Bank added to the woes, saying it was scaling back its hiring plans.

Hopes that Russia might decouple from global markets and trade on its own fundamentals were short-lived, DePoy said. MICEX closed down Friday to 1725.11, while the RTS edged up to 2026.29.

Investors seem to be hanging tight while they await the expected announcement on the Cabinet reshuffle.

Among the possible casualties of the looming Cabinet shakeup, acting Finance Minister Alexei Kudrin and acting Economic Development and Trade Minister German Gref, both liberal-minded politicians, are the ones that have most worried investors. Anatoly Chubais, head of national utility Unified Energy System, has been mentioned by some sources as a possible energy minister in the new government, but has insisted that he will stay with UES until it is fully wound up in June after its main units are spun off.

Oil stocks, which saw only moderate gains Wednesday, were slowing down toward the end of the week. This came in sharp contrast with the recent spike in oil prices, as the U.S. crude price soared to record levels last week to push past $84 per barrel.

Anywhere else, this would be reflected in the share price.

But in Russia, oil companies operate under a hefty tax regime, and it is no longer the case that oil stocks track the crude price.

Speaking in Sochi on Thursday, President Vladimir Putin pledged to boost oil and gas output to help meet global demand. His comments come at a time of slowing oil production in the country, and the majors are going to need a lot more money if they are to raise output, analysts said.

In its bid to diversify the economy, the Kremlin has driven investors away from the energy sector, said James Beadle, a fund manager at Pilgrim Asset Management.

"Global supply and demand is so out of balance ... that [the government] will need to make changes to [its] regulation," he said.

Analysts are now widely predicting changes to the tax regime, after Rosneft added its voice to those calling for it to be eased for new, particularly offshore, projects.

"We do expect the taxation [environment] to change," said Artyom Konchin, an oil and gas analyst at Aton brokerage. "But the timing and amount is unclear. ... Russia remains eager to attract those windfall profits. I don't subscribe to the theory that everything will be given back to the oil companies."