Promising Outcomes Not Always Guaranteed According to Evgeny Kogan
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Sunday's Drone Attacks: Difficult Times Ahead for Russia-Ukraine Negotiations
It's a rocky road ahead, especially on Monday. The terrifying drone attacks by Ukraine on Sunday in five Russian regions have made the air thick with tension, and talks scheduled for today are looking grimmer than ever.
Negotiations in this chaotic atmosphere can be nothing less than a headache. I've been warning you, it won't be a walk in the park, and now, any positive outcome appears more elusive than ever.
If this is the case, then the likelihood of a "hard" sanctions package from the US also surges. This is no longer a scary what-if, but a plausible scenario that's being factored in.
Oil Woes for Russia Might Turn into an Advantage
Trade on the Moscow Exchange over the weekend saw a sudden plunge in stocks, regardless of the low trading volume and heightened emotions. The evening news of the Russian delegation's arrival in Istanbul for negotiations slightly lifted quotes.
Although there's no automatic end to talks, you can catch your breath and stop panicking!
But the tense atmosphere persists.
And it's not just here. On Monday, oil prices almost touched $65. Investors worldwide are jittery about the potential impact of increased pressure on Russia, which could lead to supply disruptions.
This comes after Saturday's decision by OPEC+ leaders, where Saudi Arabia managed to push through a third consecutive increase in production by 411,000 barrels per day. Russia and some other participants voiced their opposition, but the agreement was still approved.
For Russia, these oil troubles could ultimately turn into a plus. Sanctions usually instill more fear than they deprive of oil trade revenues. And prices are climbing, which is beneficial given the rise in production.
The essence of the situation is clear: Saudis are hiking up the pressure for compliance and snatching away market share, acting more autonomously. While this is not entirely surprising news, at least there was a semblance of consensus before.
Central Bank's Interest Rate: Will it Drop?
Let's not forget about the Central Bank's meeting scheduled for Friday. More and more voices echoing the possibility of a rate cut are emerging. However, I strongly disagree. And here's why.
The Central Bank has emphasized for the past few months the importance of a consistent picture of stable inflation reduction. What's missing from this picture now?
1. Inflation expectations are growing, not decreasing, for the second month consecutively to a level of 13.4% among the population. Among businesses, they are reducing gradually.
2. The labor market remains in a state of excessive heating. The unemployment rate has hit a new record low of 2.2% (seasonally adjusted).
3. Inflation is slowing unevenly. In unregulated services, where currency influence is weak, price growth continues at high rates: over 1% per month. The CB might question whether demand is cooling down without the currency effect.
However, there's one very important positive factor. The CB has been underestimating inflation for the second quarter in a row. In Q1, it anticipated quarterly inflation of 10.2% annually, but it turned out to be 8.3%. In Q2, it expected 7.0%, and it's currently at 4.4%.
In July, the Central Bank will have to revise this forecast, which is a crucial argument for lowering the interest rate. By July, we may finally see a more coherent picture of disinflation.
What is the Central Bank Afraid of Now?
Starting too early and jeopardizing all the progress. A similar issue occurred last year. The market began anticipating a rate cut soon, and the Central Bank's rhetoric allowed this. Softer monetary conditions contributed to inflation acceleration. The Central Bank doesn't want to repeat that mistake.
Some market participants are hoping for a rate cut as early as June. They urge the Central Bank to reduce the interest rate to neutralize its stance and send a positive signal. They argue that this wouldn't necessarily initiate a cycle of rate cuts.
In my opinion, that's a simplistic view. If the Central Bank lowers the interest rate, everyone will rejoice and flock to bonds. Forecasts will be revised, and the Central Bank's words will no longer matter. The Central Bank will get exactly what it fears: an excessive market reaction.
Therefore, the interest rate is most likely to remain unchanged. At most, we can hope for a very cautious signal: we will assess the appropriateness of a rate cut at the next meetings, i.e., we might lower the rate sometime in October, or we might not. Nevertheless, I expect the Central Bank to confirm the sustainability of disinflation by July and start cutting the rate by 2 percentage points.
Additional Reading on DK.RU: Yevgeny Kogan: What Investors Need to Focus on in the Era of Global Power Shift
(Enrichment Data)
Note: The enrichment data contains additional information and insights not present in the base article.
1. Territorial Disputes & Escalation: The conflict between Russia and Ukraine is not only about negotiations but also fueled by territorial disputes, especially concerning Crimea, the Sea of Azov, and Eastern Ukraine. These disputes have led to military engagements in the past, and escalation remains a concern. The impact of these tensions on Western sanctions and global energy markets should not be underestimated.
2. Strategic Bomber Fleet Losses: The Ukrainian drone attacks have resulted in significant damage to Russia's strategic bomber fleet, which could impact Russia's strategic capabilities and potentially weaken its military posture. This would indirectly provide Ukraine with a stronger bargaining position during negotiations.
3. Intelligence Operations: In addition to drone attacks, Ukraine has launched cyber and intelligence operations against Russia, causing disruptions in its energy infrastructure and military command and control systems. These operations not only contribute to escalation but also bring into question Russia's ability to respond effectively to such attacks.
4. Diplomatic Response: Western nations, particularly the US and NATO, have responded to the drone attacks by condemning Russia's actions and calling for de-escalation. This increases pressure on Russia, particularly as they prepare for negotiations, and may lead to a more robust diplomatic response if more attacks occur or negotiations fail to produce a positive outcome.
5. Sanctions & Energy Markets: In response to these developments, the US and its allies have signaled a willingness to impose or tighten sanctions on Russia, targeting financial institutions and energy sectors. This could further disrupt energy markets, raising oil prices and increasing costs for both Russia and its allies. Western nations may also increase support for Ukraine, including military aid and diplomatic pressure on Russia, if the drone attacks continue or negotiations fail.
6. Role of Oligarchs: Russia's investment banker Eugene Kogan is known for his active role in discussing current events on Telegram. However, it's essential to consider the potential influence of powerful oligarchs, who have significant economic interests in various industries, including energy, finance, and military-industrial complexes. These interests could impact Kogan's analysis and investment strategy, as well as potentially skew or distort his public statements.
- With the prospect of increased pressure on Russia due to the conflict, investors might be interested in adjusting their portfolios to account for potential supply disruptions in the oil markets, which could lead to further volatility in finance and business.
- In the midst of geopolitical tensions and uncertain negotiations, strategizing for investing becomes crucial. Understanding the dynamics of the situation, such as the potential impacts on energy markets, sanctions, and oligarchs' influence, can help investors make informed decisions and navigate challenging business environments.
