Times are a-changin'
It's barely four months since From the Floor was all doom-and-gloom about Russia as the USDRUB headed towards 80 and a beleaguered Central Bank of Russia was hiking interest rates in a desperate bid to shore up the currency.
Fast forward four months and USDRUB is at 52.3 and even more significantly, the MSCI index is up 37% in the year-to-date. There could be legs yet to go further, says Saxo Bank's head of equities, Peter Garnry, who labels Russian equities as "by far the cheapest in the world."
Garnry is at pains to stress that this is not yet a trade recommendation, but with rouble flows reversing and "a technical challenge of the 200-daily moving average nearing," he says that the last piece of the jigsaw could be the oil price.
"This rise in equities has come despite the low oil price and if that reverses, we could see Russia's equities markets go even higher," he says.
Oil's trajectory
So is oil ready to give the MSCI yet another bump up? Well, despite a huge switch in momentum with "the market continuing higher and a big jump in speculative longs in WTI," says Saxo Bank's head of commodities strategy, Ole Hansen, "the move is still a little premature."
Hansen accepts that US oil production is seemingly flattening out but points out that huge inventory levels have to work their way through the system before we can expect significant impact on the WTI price.
"WTI is still rangebound and we still need to see a major pickup in demand," he says. "Opec is now producing more than 31 million barrels and we see the likes of Russia continuing to churn out more oil," says Hansen. "US storage hub Cushing is also just 10-15% below full capacity."
Hansen sees WTI continuing to be stuck in a $47-54/barrel range for the foreseeable future even if he does anticipate demand picking up eventually, and points to the continued wide prompt spread for May/June at $1.80/b as further evidence of the underlying fundamentals.
"It costs more than 3.5% to roll long positions over into the next month at that kind of spread," he says. "The prompt spreads are still showing weak demand and are limiting upside for now."
At 0655 GMT, WTI was at $51.71/b. European benchmark Brent was at $57.92/b.
China's wobble
Talking of demand, oil's pickup is unlikely to come from China which unveiled pretty shoddy trade figures overnight to record the narrowest surplus in 13 months.
Exports fell by 15.0% versus plus 9.0% expected and imports were down 12.7% versus minus 10.0% expected.
Soft external demand was visible in all regions, with shipments to the US falling 8%, EU by 19%, and Japan by 25%," says the Singapore desk's Christoffer Moltke-Leth.
The China Customs bureau said the imports drop was mainly due to lower commodity prices, and the government will work to meet broader 2015 targets. Certainly, Saxo Bank's head of forex John J Hardy, felt markets were reading too much into the trade figure.
"This happens to China every year in either February or March and it won't really be until next month's figure that we get a real understanding of whether this is a real sign of weakness," he says.
That notwithstanding, the trade data had a detrimental impact on AUD and NZD, and Hardy anticipates a test of the sub-75 area for AUDUSD.
It's a dramatically different story in the equities markets, however, where the Hang Seng and Shanghai Composite continue to ride speculation that the government is set to ramp up the Shanghai-Hong Kong-Connect to the tune of RMB40 billion.
"Investors are getting worried that this is a bubble, but I think they are missing the point," says Moltke-Leth. "The Chinese policymakers are very serious in their plans to develop this market."
"More than USD250 billion was traded on these markets Friday which is more than the US equities markets combined," he adds.
Go Valero!
On the subject of equities, Garnry can't help thinking the US' Valero Energy (NYSE:VLO) could be in line for a sharp rise. "Spreads are very attractive in the US refining sector right now and with strong momentum and valuations very attractive, it's got a tailwind."
"We're buying at the market and intend to keep the position for one month," he says.
And finally...
And last, but not least, there is bedlam in vols in SGDUSD and SGDAUD ahead of tomorrow's Singapore Monetary Decision.
"Overnight, at-the-money vols were rising to 27, 1.5 figures for a straddle," says Jeppe Norup from the FX Options desk.
AUDUSD and NZDUSD vols were also both noticeably higher after the trade data out of China with very large strikes around the 76 figure for AUDUSD and something like A$1.6bn forked out, says Norup.