Analysts of the telegram channel MMI, dedicated to macroeconomic issues, paid attention in their publication to Saturday's protests:
“Some readers accuse us that MMI is starting to slide from an economic channel into a political one. No, it’s not. The main question to which we have always looked for an answer is what is happening in the global and Russian economies, what to expect next, and how this will affect the financial markets. We continue to think in this direction, sharing our thoughts with you. But it really seems to us that the growth of protest activity can become an important factor influencing both the economy and the markets. It cannot be ruled out that this will generally be the next black swan. Therefore, we will continue to closely monitor this topic. And now a few thoughts on past events.
On Friday, we conducted a survey on the impact of the upcoming protests on financial markets. The most popular response from our readers (35%) was that the protests would be modest. Considering that 40% of our readers live in Moscow and the region, we can say that, on the whole, they were right. We will not discuss the numbers now (we may be wrong), but we got the impression that the scale of the protest in Moscow was smaller than in August 2019. But this cannot be said about Russia as a whole. In many cities, protest activity this Saturday was at an all-time high.
For economists, this is a very curious detail. Why are the regions more dissatisfied than Moscow, although it has always been the other way around?
From the events of last Saturday, we draw the main conclusion: protest moods reach their maximum outside Moscow, and there are serious economic reasons for this.
How will all this affect the economy? And here it depends on the reaction of the authorities. In democratic countries, the natural answer would be to redistribute the social pie from the center to the regions (in democratic countries, such a concentration of resources in the center is generally difficult to imagine). In authoritarian regimes, reactions can be most unexpected and inadequate. But still, given the upcoming elections to the State Duma, to which the government pays great attention, it is logical to assume additional measures of budget support aimed specifically at the regions. And this may become an additional factor in the growth of the Russian economy this year, which we still expect to be above 3%. By the way, while we're on the subject of economics, here's a quick look at the current picture:
How will the rise in protest sentiment in the country affect the markets? Not yet. According to our estimates, the notional “sanctions premium”, where the risks associated with domestic political factors can be dumped, remains very high. She simply has nowhere to grow further.
Therefore, in relation to the ruble, we continue to recommend the traditional seasonal investor model: in the 1st quarter, we sell the dollar at any upward jumps; we turn over starting from March-April, and for the rest of the year we play up the dollar.
In relation to OFZs, we also consider the current yield levels to be already noticeably deviated from equilibrium. Approaching the long end of the curve to 7% is already overkill.
As for stocks, they continue to live their lives. There is indeed a bubble here that we haven't seen since the dot-com boom at the end of the last century. It will begin to deflate, apparently, after the first signals about the collapse of QE. When to expect it? It depends on the extent to which the Biden plan will be adopted. If $ 1.9 trillion, as announced, then the Fed will need to take action in the summer and autumn, because with such an incentive, the US economy can very quickly find itself in a state of overheating. In fact, it is in the excessive stimulus from the American administration that we now see the main macroeconomic risks for the markets.