Another factor that explains how Russia came out of the recent economic collapsed, the ruble followed in lockstep (Figure 2), making Russia’s accounts for 42% of Russian exports amounting to 10.1% of GDP.
some of the harshest impacts of weak commodity prices, its economy does have vulnerabilities that extend beyond a dependence on raw materials and the impact of Western sanctions. Perhaps Russia’s biggest potential weakness is its extraordinary dependence on Chinese growth. This may sound odd. Despite sharing a 4,200-km-long (2,600 miles) border, only 9.9% of Russia’s exports head to China, amounting to 2.2% of GDP. Nevertheless, while China has relatively little direct impact, its growth and agricultural goods.
government and services sectors. The Li Keqiang index, named for China’s current premier, has a much narrower focus: it looks at only three key indicators of industrial growth: rail freight, electricity consumption and growth in bank loans. The government measure has shown an unusual degree of stability recently while the Li Keqiang measure has demonstrated a much higher degree of variability. As it turns out, the Li Keqiang measure is much more relevant to determining future correlates with future WTI prices at up to 0.45, 4-8 quarters (1-2 years) in advance (Figure 3).
Russian GrowthRussian Growth
The same is true of other key Russian exports. With industrial metals such as aluminium, copper, iron ore and platinum, the Li Keqiang index correlates at up to 0.55 with future prices 3-6 quarters in advance. It exhibits a similar correlation to wheat prices.
consumption has relatively little impact on the Russian economy in a direct sense, it plays a major role in determining the global price for Russian exports. This comes as little surprise. China consumes 40-50% of the world’s industrial metals and 67% of global iron ore production. It also consumes 8% of world oil output and around 20% of the world’s agricultural goods. As such, when China sneezes, the commodity markets catch a cold. Not surprisingly, the Li Keqiang index also has a strong impact on the currencies of commodity exporting countries such as the Australian and Canadian dollar, Brazilian real and especially the Russian ruble. Li Keqiang’s correlation with the ruble runs as high as 0.8.
relatively little direct business with China, it remains extraordinarily dependent on Chinese growth. Secondly, while Russia has little debt, its exporters may be left holding the bag if China’s economy slows down dramatically as a result of its own massive debt burden.
Erik Norland E:
erik.norland@
cmegroup.com
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The This report and the information herein should not be considered investment advice or the results of actual market experience.
Source: Bloomberg Professional (USCRWTIC and RUB)
Source: Bloomberg Professional (CL1, GNGDPYOY and CLKQINDX), CME Economic Research Calculations
25 | ADMISI - The Ghost In The Machine | March/April 2018
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32
