The Russian market for the second consecutive day, nervous about the new American sanctions. It’s an overreaction: the new sanctions are not so terrible
Photo: Seth Wenig / AP
Russian markets fall second day in a row: in particular, the dollar rebounded against the ruble since early yesterday by 3.9%, from 63.5 to 66. Reason is a powerful concentration of new sanctions risks.
August 8, market participants have read the full text of the bill, several senators (both Republicans and Democrats), promising tough sanctions against the Russian sovereign debt and state-owned banks, and frightened. This was followed by the announcement of the US state Department about the already made decision to introduce sanctions against Russia because of the use in Britain of toxic substances “Beginner”. Finally, administration of the President of the United States Donald trump is preparing a decree allowing to impose sanctions on foreigners intervening in the American elections, announced yesterday The Washington Post. This document, said the publication is seen as a more gentle alternative to aggressive anti-Russian initiatives coming from Congress.
The dollar at the close on Wednesday, amounting to 65.5 rubles, shortly after the start of trading on August 9 reached 66.7 rubles, which was the highest since July of 2016. This morning the Euro has exceeded 77.3 rubles, which was a record since April of 2016. However, 20 minutes after the start of trading pressure on the Russian currency began to decline. As of 16:38 GMT the dollar traded at RUB 66.1 per cent, and the Euro — 76,6 RUB.
Against this background decreased and the key Russian indices: RTS on Thursday fell below 1,100 points (Wednesday evening, it stood at 1,147 points), reaching a low of 1077 points. Index Mosberg dropped from 2,293 to 2260 points, but then completely played the fall.
First Vice Prime Minister — Minister of Finance Anton Siluanov tied the volatility in the markets “as the next wave of sanctions, U.S. rhetoric against Russia, and the unstable situation in emerging markets.” He assured that the economy in recent years has become more stable, and the government and the Central Bank “possess all the necessary tools to ensure financial stability.”
Why the drop stopped?
Exchange rates are stabilized, as the “first emotions had subsided, the main outflow of non-residents of BFL completed, and Brent stopped at the cost of slightly above $72 per barrel,” says investment strategist “BKS the Prime Minister” Alexander Bakhtin. The pressure on the ruble “should gradually come down,” he predicts: “it is Not excluded that till the end of the week, the dollar could correct down and compose 63-64,5 RUB”.
Photo: Andrew Lubimov / RBC
The rate stabilised around 66 RUB is not surprising, since the new sanctions are less painful than the bill senators Menendez and Graham, points out the chief economist of Alfa Bank Natalia Orlova. “The trading range for the coming week we see the levels 64,25–67,50 rubles per dollar”, — she pointed out in the review.
The ruble yesterday “over-reacted” to the bill, U.S. senators, says economist Nordea Bank Tatiana Evdokimova. She emphasizes that Senator Graham, the initiator of the bill to increase sanctions on Russia in 2017 introduced 13 bills, of which law was only one.
What are the new sanctions?
The state Department on 8 August announced that the US administration came to the conclusion about the involvement of Russia to use a poisonous chemical agent in the assassination of Sergei Skripal and Julia in March of this year. In accordance with the Law on the control of chemical and biological weapons from 1991 (Chemical and Biological Weapons Control and Warfare Elimination Act) the US President is obliged to impose sanctions against a country that, according to the American government used chemical weapons banned by international conventions.
The law involves two rounds of sanctions, and the first will enter into force on 22 August. An additional round of sanctions could be adopted within 90 days if Russia does not fulfil certain conditions (the government must provide guarantees against the use of chemical or biological weapons in the future, you should be prepared to allow international inspectors into their facilities).
Russia has become only the third country, against which us sanctions applied under this law for 27 years. The first was Syria in 2013, second to North Korea in 2018 (the U.S. government concluded that North Korea was involved in the murder of half-brother of North Korean leader in Malaysia to 2017 with the use of nerve substance VX).
The fact that the administration trump have applied to the Russian law on the fight against chemical weapons is of great political significance, but the economic consequences of these sanctions are likely to be purely symbolic. Mandatory set of sanctions that will take effect on August 22, includes the termination of the provision of foreign assistance from the United States, the termination of the supply of arms and funding for arms purchases, the refusal of American state and the ban on exports to Russia of goods and technologies, “sensitive from the point of view of national security” of the United States.
The export of American weapons in Russia is prohibited, and the United States do not provide state loans (on the contrary, Russia has, until recently, was a creditor of the U.S. government). Some losses may occur in bilateral trade — the supply for “several hundreds of millions of dollars” (per year) may be affected, said the spokesman at a briefing. But the US government had already provided several exceptions that are allowed by the 1991 law and the restrictions will be much softer.
What exceptions has promised the state Department?
First, the U.S. will continue to provide “foreign aid to Russia and its people” (including humanitarian aid and assistance in the development of human capital), said the representative of the state Department. Secondly, the sanctions prohibiting the export of sensitive goods that will not affect space cooperation between Russia and the United States. In addition, under new sanctions will be withdrawn the products and technology necessary to the security of commercial passenger aviation. Finally, licenses for the U.S. export of sensitive goods will still be granted in individual cases (case-by-case) if the end user is “purely commercial consumer” solely for civilian use.
Now supplies to Russia of American products and technologies, sensitive from the point of view of national security (that’s a big list, including, for example, aeropostle gas turbines, electronic devices and components, integrated circuits, measurement and calibration equipment, various materials, etc.), is possible only at availability of export licenses, US Department of Commerce. These licenses are issued and so hard. Now how said the representative of the state Department at a briefing, such licenses will be automatically denied if the ultimate recipient of sensitive goods is the account associated with the Russian government. According to the representative of the state Department, potentially such consumers in Russia may lose their future supplies for “hundreds of millions of dollars.”
In 2016 (latest available statistics), US Department of Commerce examined a total of 502 applications for export/re-export of goods to Russia totaling $4.3 billion, of which 208 had approved applications amounting to $2.7 billion.
What sanctions threaten Russia in 90 days?
Additional sanctions against Russia may be introduced after three months, if the Russian government will not agree to provide guarantees of non-use of chemical weapons. Given that Russia does not consider itself involved in the poisoning Skrobala, a scenario in which Russia would agree to give US any guarantees, it looks incredible.
The second set of sanctions are the six possible measures, of which the US President is obliged to choose at least three. Of these, two measures are of a symbolic nature and do not have for Russia practical value (blocking international financial assistance and the prohibition of American banks to provide loans to the Russian authorities), the diplomatic one (the downgrading of bilateral diplomatic relations) and three others — with potentially serious consequences for the economy and business, but they can not be used (because only three of the six measures). Is a complete ban on the export of goods from the United States (except food and agricultural products), a complete ban on U.S. imports and a ban on air links with the United States for public carriers (in the case of Russia’s “Aeroflot”). But the U.S. is not going to ban flights of “Aeroflot” already declared in the state Department.
Quotes “Aeroflot” at first was hard-hit: on Thursday morning, they fell from 111,9 to 102,8 RUB, and the minimum (at 10:29 MSK) their price was 98.8 per RUB (minus 12%). Then quotes carrier played the fall at 17:11 GMT one share of “Aeroflot” is only 0.6% less than the day before.
A penalty imposed by law on chemical weapons, are at least a year and can be cancelled by the President of the United States, if the state against which they are introduced, provide further guarantees of non-use of chemical weapons, allow international inspectors and will reimburse the damage suffered by the victims of use of chemical weapons.