Waiting for U.S., China recovery

Russian markets moved little this week as investors anxiously wait for signs of recovery from world markets, but indications that the decline in the United States is slowing and growth in China have been viewed as positive.
The U.S. Federal Reserve's beige book saw a contraction in overall economic activity but found that the rate of decline had slowed in 5 of the 12 districts, while several noted stabilisation in some sectors.
"Although there has been a raft of very poor economic data, the market has been very willing to believe that the situation is improving," said Tom Mundy, vice president of equity strategy at Renaissance Capital.
Other banks were less positive about the U.S. data, which saw industrial production down 1.5 per cent and capacity utilisation fall to a record low of 69.3 per cent.
"This week has brought some unpleasant surprises for green shoot believers," Ivan Ivanchenko, head of strategy at VTB Capital, wrote in a note to investors. "There was a frosty report from the U.S. Census Bureau ... pointing to the U.S. consumer retrenching in March after promising upticks in retail sales series in January and February."
U.S. stock markets rallied Wednesday night on the back of the economic data, while in Moscow the MICEX opened up 10 points on Thursday.
The MICEX has hovered just above 900 this week as investors wait for U.S. financials to report their first-quarter earnings, although better than expected profits of $1.8 billion from Goldman Sachs lifted global markets on Monday. However, the announcement of the sale of $5 billion worth of stock saw its share value subsequently drop 12 per cent.
Russian banks performed well on the back of Goldman Sachs' results, with Sberbank gaining 9 per cent Tuesday and VTB up 5.7 per cent.
With JP Morgan expected to announce positive results late on Thursday, and Citibank to follow on Friday, world markets were forecast to rise. Citibank's shares rose 5.53 per cent on Tuesday as investors predicted strong earnings.
"[JP Morgan] has previously stated that it had a positive financial performance for the first two months of this year," UralSib wrote to investors on Thursday. "Factual proof will likely provide another positive boost for financial stocks globally and the broader market."
Russian economic data has been poor this week, with the Federal Statistics Service announcing that industrial output declined 13.7 per cent year-on-year in March.
"The data shows that in March the situation in the real economy continued to deteriorate, which is disappointing - but expected," UralSib commented.
However, world macroeconomic data is continuing to drive the Russian markets, particularly China, where 6.1 per cent growth in the first quarter has been seen as positive, despite being down from 6.8 per cent in the final quarter of last year.
"There are still extreme strains in Russia," said Mundy. "It is bad but I think the market is hoping that any indication that things are picking up in the U.S. and China will start to turn these things around."
Next week should add more clarity to both the Russian and world markets with many of the major banks set to release their first quarter results, including Bank of America and Morgan Stanley, as well as Citibank and Merrill Lynch on Friday.
"The market is going to be very interested in what's happening to U.S. banks and how their first quarter earnings are holding up," said Mundy.