Fed U-turn, investors escape, catch-22 for RF

5 ביוני 2019

Markets actively discounted under the monetary policy turn in the United States. In this light, the current decline and weakness of the dollar are quite understandable. On the part of officials, comments about a possible rate cut sound more and more actively. In particular, recently the St. Louis Fed President Jim Bullard, said that lowering the rate may be necessary to counter the risks of trade war. Federal Reserve Vice Chairman Richard Clarida said that the Central Bank is ready to lower rates. Well, and finally, yesterday Fed Chairman Jerome Powell noted that the Central Bank is ready to "act in a suitable manner to support the expansion" of the economy.

Recall that the markets are confident that the rate will be reduced at least twice in 2019, while there is a non-zero probability that the rate will be reduced 4 (!) Times during the year.

Despite the formal reason for the optimism growth in the stock market, investors are escaping from the stock market. One of the reasons for the panic was the information from Reuters that the US Government might launch an antitrust investigation against Amazon, Apple, Facebook and Google. Following the news, Facebook and Alphabet Inc shares fell by more than six percent, and Amazon shares fell by four and a half percent.

In this light, the behavior of Stanley Druckenmiller, one of the legendary Wall Street investors, seems quite logical. He sold all the shares from his portfolio (the proportion shares, in the portfolio structure, was over 90%).

Recall, the Reserve Bank of Australia reduced the interest rate to the lowest value in the history of 1.25%. Our recommendation for working with the Australian dollar against the background of such information is to look for points for its sales.

Yesterday was remembered by rather sad statistics on the UK. Retail sales literally collapsed by 3% at the end of May (the lowest value in the entire history of observations), and the index of business activity in the construction sector surely went below 50, indicating a decrease in economic activity.

Wednesday in terms of macroeconomic statistics will be more active. We are waiting for data on retail sales in the Eurozone, data on employment in the US from ADP (we recall, on Friday will be published official statistics on the US labor market, including data on the NFP), as well as data from a number of US business activity indices.

Bloomberg analysts recently published the results of a study which showed the unattainability of most plans of the Russian authorities in terms of economic growth and improvement of welfare in the country. The main conclusion is: Putin’s plans to double the GDP aren't meant to be. The Russian Federation in fact fell for the so-called "catch 22". In this case, it can be formulated as follows: to ensure economic growth above 3%, it is necessary to accomplish a number of smaller tasks, performance is possible only at a GDP growth rate above 3%. And the current growth rate equals 2%. That is, small goals will not be completed (the basic condition is not completed), which means that the main goal, growth above 3%, will not be achieved either.

In this regard, we recall the feasibility of selling the Russian ruble on any attempts to grow. Since the growth rate is below the world average - it is not even standing still, this is the lag and loss of competitive positions.

Our positions today: we are continuing to look for points for buying of the euro and the pound against the US dollar, sales of oil and the Russian ruble, as well as buying of gold and the Japanese yen. In addition, we will sell the Australian dollar against the US dollar.