We continue informing you about the results of our activity and the view of the company’s specialists regarding situations and processes in the global and regional economies.

In June 2017, the assets value of WellMax investment portfolio increased by 1.06% in USD and EUR that equals to 12.72% per annum. There was a 13.44% yield per annum in rubles, a 12.84% yield - in yuans.

The assets value of WellMax Premium investment portfolio has decreased by 5.99% in USD over the period from June 10 to July 10, 2017.

The slight decrease in the assets value of WellMax Premium investment portfolio over the last month caused by some technical reasons and it is related to the negative dynamics of a range of assets in our portfolio. Among them, there are RUSS exchange-traded fund aimed to earn from weakening Russian stock market, and UGAZ aimed at earning from rising gas prices. Temporary decrease in natural gas prices in the USA was caused by a lower than an average many years’ temperature typical for this season in East Cost and Midlands of the US, observed in late June/early July (see the chart below, the source: NOAA National Weather Service).

At the same time, it should be mentioned that this decrease may be a temporary one. In the short term the prices must be supported by the temperature rise expected in the most part of the US territory in the next two weeks (see the charts below, source: NOAA National Weather Service).

In its turn, in the medium and long term the rising prices must be significantly supported by a relatively weak growth of natural gas stocks in the USA. If the present gas injections into underground storages keep their pace, the volume of gas in the country before the heating season 2017/2018 may be much lower in comparison with those of the previous heating season; this may result in rise of gas prices.

It also should be mentioned that the gradual price rise for natural gas, which we had forecasted, has already started (see the chart below demonstrating price dynamics of the August futures).

Besides, in the last month, the yield of our portfolio has been positively influenced by growing shares of First Solar Inc., American photovoltaic modules (solar batteries) producing company, and of Gilead Science Inc., a pharmaceutical giant; we wrote about them in June. The charts below (source: Yahoo Finance) demonstrate the dynamics of these instruments within the last month.

In the last month, strong price movements have been observed in oil market; while the dynamics of oil prices completely matched our forecast from the previous review. Upon reaching a local bottom point on June 21, 2017, oil prices started rebound caused by players' locked in profits from a decrease in prices, expected reductions of global oil stocks and a weak US dollar.

However, on July 5, 2017, oil market rallies stopped and oil prices returned to red zone after Reuters had released information about increased oil export by OPEC countries in June, despite the prolongation of OPEC’s production cut agreement. According to Reuters, in June OPEC exported 25.92 million barrels of oil per day, which is 450,000 bpd more than in May 2017 and 1.9 million bpd more than a year before. 

On Friday, July 7, the prices were still falling against the information published by the US Department of Energy about growing oil production in the US. According to the Department, oil production in the country has grown by88 thousand bpd; this rate has practically neutralized last week's fall by 100 thousand bpd caused by a tropical hurricane. The total volume of oil production in the US had risen up to 9.338 million bpd within the week ended on June 30.  

According to last report of the US Department of Energy released on July 19, the country's production had grown again by 32 thousand bpd and amounted to 9.429 million bpd. However, it should be noted that according to the same reports, the US crude oil stocks have decreased by18.59 million bpd last three weeks that is more than the rate expected by the market (8.347 million barrels).

Such significant oil withdrawal from storages halted falling oil quotations, boosted and fixed them above 48 USD per barrel of Brent.

It also should be mentioned that US shale oil producing companies have to constantly increase drilling activity and put new wells into operation in order to support sustainable growth of oil production; such measures are related to technological characteristics of the drilling method.  The highest production rate of shale oil wells (i.e. volume of output from one well per time unit) is observed in the first month upon put into use; then the volume of output rapidly decreases. Besides, according to recent surveys conducted by several analytical agencies, the cost of oil production from new wells amounts about 50$ per barrel. Thus, in view of decreasing drilling activity in the US, given the current price environment remains, we can consider the current level of oil output in the US as close to the highest one; this may provide support for oil prices in the mid- and long term.

Another support for oil prices is the updated forecasts of the International Energy Agency (IEA) released on July 13. According to them, in 2017, world demand for oil will increase by 1.3% up to 98 million bpd, which is 100 thousand barrels higher than forecasted a month ago.

In the short term OPEC oil production data will exert pressure on ‘black gold’ prices; according to OPEC’s July report, the organization increased production again up to 32.611 million bpd in June, which is 393.5 thousand bpd higher than in May. Libya and Nigeria were the main countries to increase output; we mentioned them as a risk factor for oil prices in our previous economic reviews. Another country, which should be mentioned, is Iraq since despite of its obligations (output limitation up to 4.351 million bpd) it continues increasing production; this can shake the confidence in the Vienna agreement.

In our analysts’ opinion, the most possible future for the oil market is to stay highly volatile for the next several months. In the short term the oil price can reach the psychologically important border of 50$ per barrel of Brent. It also may stick to this level or slightly above. However, considering the complex of the above-mentioned fundamental factors, in the mid-term the prices will continue bearing a strong pressure and it’s most likely for them to stay within 45-51$ per barrel of Brent

Negative price dynamics in the oil market along with the risk of new sanctions respectively influenced Russian national currency exchange rate, which has reached the highest strengthening point and started falling as we forecasted it in our previous review.

Besides, the ruble has been influenced by drastically deteriorated balance of foreign exchange earnings in Russian economy. According to the Central Bank of the Russian Federation (released on July 11) the current account balance of Russia’s balance of payments was negative in June – the economy lost 4 billion $ more than earned; as a result the total of currency inflows from April to May was overlapped by the June outflow. Thus, the quarterly index was negative either, amounting to -0.3 billion $. Despite the fact that it’s quite typical for Russia’s balance of payments to be weak in summer, usually it characterizes the third quarter’s reporting when the vacation period reaches its peak and non-residents withdraw their dividends out of the country (as it was in the third quarter of 2013). However, the current account balance has had deficit in the second quarter for the first time over the last 19 years.

At the same time, a relative steadiness of the ruble’s exchange rate in the second quarter was ensured by growing foreign debt and money inflows from non-residents to state bonds. However, due to ongoing filling of the gap between Russia’s and the US interest rates non-residents’ interest towards ruble assets (including state bonds) are going to weaken; this will influence the ruble as well. Considering the total of factors influencing the exchange rate we are likely to keep forecasting the gradual depreciation of the Russian currency by the late 2017/early 2018 by 10% or more from the level of 56.5 rubles per one US dollar.

On July 12, American Fed Chair Janet Yellen addressed the Congress with her speech; the address should be mentioned as one of the most important events, which influenced the global economy in general, including the ruble and other currencies. In her speech, Janet Yellen said that the Fed continues to raise interest rates and starts cutting the Fed’s balance by the end of this year despite the low level of inflation in the US observed within the last two months. It should also be mentioned that the Fed’s policy of reversing quantitative easing has not resulted in US dollar strengthening against main currencies including euro, as expected. The reasons are the volatile economic environment in the US, mentioned in our previous review, along with statements of ECB President Mario Draghi.

The first reason includes both, the unwinding scandal involving the current president administration, which we had mentioned earlier, and failure of one of the main bills promoted by Trump – Obamacare repeal, which has not found necessary support even from the US Republican Party. This is treated by the market as a motion of non-confidence for the President’s policy and raises doubts regarding success of all the other reforms promised during the election campaign. Besides, Trump is greatly pressed by the society regarding the investigation mentioned above, which even more constricts movements of the administration for conducting foreign & domestic policies

Another reason for weakening of the US dollar against euro is the market’s expectations regarding possible changes of ECB policy. The expectations were triggered by the statement of ECB President Draghi; on June 27, during his speech in Portugal he gave hope to the markets for next year’s possible monthly cutting of purchased assets in the amount of 60 billion euro within the framework of stimulation program.

Despite the relative summer calmness in the global market due to the season decline in business activity, the autumn of 2017 is able to bring some strong changes to the global financial markets. There are a lot of reasons to trigger them, which include changes in narratives and policies of the leading world Central Banks; the Fed starts cutting its balance and possible weakness of the US stock market; record-breaking growth of world debts including China’s; possible escalation of tension in the world.

The autumn is likely to bring a quite turbulent period of increased volatility in the global markets. Such time wants market participants to be ready to take quick investment decisions basing them on a deep and accurate analysis, i.e. the abilities, which have always been strong sides of International Financial Community.