Swing on the ruble: why the Russian market is believed to sanctions :: Economy :: RBC

A few days after the publication of a new bill on sanctions against Russia in this threat seriously reacted to the foreign exchange market. The ruble fell against the dollar to the level of April, when the United States expanded sanctions last time

Photo: Denis Grishkin / statements / TASS

Russian financial markets believe in the threat of the extension of U.S. sanctions against Russia: Wednesday, August 8, the dollar / ruble exchange rate peaked in April, exceeding the peak of 65 RUB (the day before the auction closed at 63.5 rubles — a drop of more than 2%). The Euro, meanwhile, has exceeded 75 rubles — such a level it has not reached since early may.

The market’s reaction, as they say interviewed by RBC analysts, connected with the publication of the recent draft law on anti-sanctions, which was prepared by the Chairman of the international Affairs Committee of the U.S. Senate, Democrat Robert Menendez and a member of this Committee, Republican Lindsey Graham (they were joined by two Republicans — senators John McCain and Cory Gardner — and Democrats Ben Cardin and Jeanne Shaheen). But it’s an emotional reaction, and the trend may turn around, experts say.

The repetition of the April

The dollar began to strengthen at 10:40 GMT — shortly after the opening of trading on the Moscow exchange. By 12:40 rate exceeded 64 rubles per dollar and by around 15:40 reached 65,04 RUB at the maximum, after which the weakening was on the decline. Similar dynamics was observed in relation to the Euro. On Tuesday evening bidding on the Euro, closing at RUB 73,7, and by 14:00 Moscow time environment, the European currency rose to 75 rubles.

As of 18:15 GMT the dollar traded at 64.6 per RUB and Euro — RUB 75

Highs in recent months, courses in American and European currency reached April 11, shortly after an unprecedented expansion of U.S. sanctions against Russia, according to which the SDN list, meaning complete isolation from the U.S. financial system, fell seven Russian “oligarchs” (in the terminology of the U.S. Treasury), including Viktor Vekselberg and Oleg Deripaska, the aluminum world leader UC Rusal and a group of En+, as well as heads of VTB, Gazprombank and Gazprom and more than a dozen Russian officials. The dollar April 11, reached 65 rubles, and Euro 80,5 RUB, but then the ruble partially recovered. The average of the period from 20 April to 7 August, the dollar was worth as much as 62.6 RUB and Euro — RUB 73,7 (data from Bloomberg terminal).

Cause a new collapse was the publication of the full text (*.pdf) a new sanctions bill Menendez and Graham, converge interviewed by RBC analysts (Wednesday on its website posted the newspaper “Kommersant”). This resulted in the sale of OFZ Sberbank shares and, as a consequence, put pressure on the ruble, said the Director of analytical Department of “Loco-invest” Cyril Tremasov. During the outflow of foreign investors in the OFZ yield on five-year securities increased yesterday by 0.27 percentage points to 7.86%, securities for a period of ten years by 0.26 percentage points to 8.11%, says financial analyst “BKS the Prime Minister” Aleksandr Taraskin.

“Now the market operates on the principle of “sell on rumor, buy on fact” — says the Tremasov. After this bill it became clear that against Russia may introduce new sanctions, so the market sells expectations. As soon as there are clear implications of the document, the trend will reverse, he said.

Delayed reaction

The exit of investors from Russian assets has accelerated, the government bonds index RGBI is reduced by updating the year’s low and falling relative to the March highs already by 5.08% notes Taraskin. “Additionally, playing against the ruble to a record volume of currency purchases by the Ministry of Finance, as well as payments on external debt, which will be in August, according to Central Bank estimates, about $1.9 billion,” he says.

Photo: Andrew Lubimov / RBC

The market reaction is somewhat belated, given that the bill was submitted to the relevant Committee of the Senate on August 1, and August 2, proponents of the bill published almost all of its key elements. August 3, TASS reported that he has the text of the bill, and RBC got it from his source on Monday, 6 August. On the same day, analysts at Barclays noted that the biggest threat in the sanctions bill is possible to block accounts and transactions of Russian banks in the American jurisdiction. If all of the listed state-owned banks (Sberbank, VTB, Gazprombank, Rosselkhozbank, Vnesheconombank, Promsvyazbank) fall under the sanctions, the effects can be even more painful than measures in relation to sovereign debt, said Barclays RBC economist Liza Ermolenko. VTB shares fell 2.9% as of 18:36 GMT, Sberbank — by 4.8%.

How dangerous bill

The text of the bill “Act on the protection of U.S. security from the aggression of the Kremlin” (DASKAA) not yet published in the official database of the U.S. Congress. In total there are over 100 pages, but, in fact, is devoted to new sanctions less than ten. The bill will oblige the President of the United States at least six months after the entry into force of sanctions against “political figures, oligarchs, and other individuals who contribute to the illegal and corrupt practices directly or indirectly in the interest of the President of the Russian Federation” against family members of such individuals, and against the Russian state structures that contribute to such “illegal and corrupt practices.”

In addition, the bill, if passed, will oblige the US President to use his authority “to the extent in which it is necessary” to block the operations of Russian banks from the list. In the list of eight names, but the Vnesheconombank (strictly speaking, not a Bank, a Corporation) is mentioned twice, and one of the banks specified by Bank of Moscow, which is part of VTB. Also, American banks and investors are banned from any transactions with the Russian “sovereign debt”, which refers to expansion — bonds of the Ministry of Finance, Bank of Russia or the national welfare Fund, the swap line with the Central Bank or Ministry of Finance. The text of the bill will obviously change during the discussion in Congress, as it was from bill CAATSA. Until the end of August, the senators are on vacation.

Why this is serious

This is not the first of the sanctions initiative for the last time — in July, us lawmakers have introduced five projects on new anti-Russian restrictions. Many of the contributors explained their appearance by the behavior of President of the United States Donald trump at a press conference following the meeting with Russian President Vladimir Putin (trump agreed with the statement of Putin about the innocence of Moscow’s intervention in the American elections in 2016) and the closed nature of the meeting between the two leaders.

But it is a project of the Menendez — Graham, presented on 2 August, the market took seriously. DASKAA — the hard version of the financial limitations of the previously proposed, estimates economist at Nordea Bank Denis Davydov. In his opinion, if initiatives are implemented, even not in full, it related to the ruble, the negative will be developed.

“Lately, a variety of bills on new sanctions against Russia from time to time appear, but DASKAA really looks more impressive, — said economist at Barclays in London Liza Ermolenko. — At the same time in the past, all the bills that eventually became laws, fine-tuned and often obscured (take the CAATSA)”. Market participants continue to believe that such harsh measures like sanctions on sovereign debt and on the banking transactions just can’t be accepted, so it is unlikely that Russian bonds contain a sanctions award, she added.

“The probability of making DASKAA increased as both parties in the US actively support this bill, which surpasses in severity the previous restrictive measures, and trump is under pressure after meeting [with Putin] in Helsinki. Perhaps to distance himself from accusations of softness towards Russia or collusion with it (spectaculorum investigated by Robert Mueller. — RBC), he will have to sign this law, — said the economist at Danske Bank in Helsinki Vladimir miklashevskii. — Although there is still a chance that the main holders of Russian bonds will be able to lobby through the U.S. Treasury exception or the easing of sanctions against the national debt”.

It is unclear how the sanctions against the banks, if accepted, would hit the Russian stock market, and through it again on the ruble, says the expert. If the earlier market looked at the price of oil, the ruble was only because of geopolitics, the importance of which was blocked currency purchases by the Finance Ministry, concluded miklashevskii.

In anticipation of the reversal

“Perhaps the fall of the ruble will end tomorrow, as no new information on possible sanctions until September, not expected,” said RBC head of the Department of investments UK “Raiffeisen Capital” Vladimir Vedeneyev.

The present course gives a signal to investors that the value of the dollar in the medium term may be more 67 RUB, “however, if the current emotional background will temporarily calm down, the price of the dollar could fall to 63.5 and 64.5 RUB by the end of the week,” adds Taraskin of “BCS Prime”. However, after a certain respite, which the ruble may get on reading this bill, one cannot rule out a stronger pressure on the Russian currency, warns Davydov.

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