Jan 15, 2022
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“Like in 2014”: The ruble became a hostage of Russia-NATO negotiations

“Like in 2014”: The ruble became a hostage of Russia-NATO negotiations

Photo: Sergey Konkov/TASS

Security consultations between Russia, the US and NATO turned into a “mini-black Thursday” for the Russian stock exchange and the ruble. After the news that the negotiations were not crowned with much success and may not be continued, as well as the comment of the Deputy Minister of Foreign Affairs of the Russian Federation Sergei Ryabkov about the possibility of a repeat of the Caribbean crisis of 1962, stocks, government bonds and the national currency went down sharply.

The constant reports of possible new US sanctions against Russian state-owned banks or even the president of the country did not add optimism to the market either. Vladimir Putin.

“Without clarifying whether there is at least some kind of resource, some margin of flexibility on the other side on some serious issues, I see no reason to sit down in the coming days, gather again and start these same discussions,” he said. Ryabkov on TV.

The dollar exchange rate, which on Thursday morning was trading at 74.7 rubles. jumped to 76.58, up over 2%. The euro also surged to its highest since July 2021 at 87.8. The stock market collapsed by 6% on the RTS index, the last time such a fall was recorded in the spring of 2020 at the peak of the pandemic. “Blue chips”, that is, the shares of the largest and most liquid companies, have fallen in price by a total of 15 billion dollars.

The Moscow Exchange Index lost 4.22%, or 799 billion rubles in terms of capitalization. Moreover, the shares of large state-owned banks, which the US Senate threatened with sanctions the day before, and commodity state-owned companies suffered the most.

On Friday, January 14, geopolitical passions calmed down a bit, and the market began to recover from the shock. The exchange rate of the national currency rose by almost a ruble and strengthened to 75.6 against the dollar, but then began to go up again.

Recall that over the past week Russia has held three rounds of negotiations around its proposals for security guarantees in Europe. The first (with a delegation from the United States) was held on January 10 in Geneva, the second (as part of the Russia-NATO Council meeting) on ​​January 12 in Brussels, and the third (at the OSCE site) on January 13 in Vienna. When the next round of negotiations will take place and whether it will take place is still unknown.

As SP explained Chief Analyst of Solidarity Bank Alexander Abramov, the “Russian” reacts sharply to negative geopolitical news and will continue to do so in the future. If not for external pressure, he could be 5-7 rubles stronger. Moreover, fundamental factors are now in favor of the national currency. But the ruble cannot ignore the geopolitical agenda, and therefore it is able to fall in price at the moment and up to 80 per dollar.

– The geopolitical situation significantly affects the ruble exchange rate. Something similar happened in 2018, when sanctions were announced first in April and then in August. Each time the ruble exchange rate fell, but over time, when the panic in the market subsided, it returned to equilibrium values, which were determined by the balance of payments and capital flows.

The fundamental factors for the exchange rate now are the price of oil, gas, metals, fertilizers and other Russian exports. Quotes for all these commodity groups are at a high level. The price of gas exceeds one thousand dollars per thousand cubic meters, the price of oil is around $85 per barrel.

The volume of gold and foreign exchange reserves is also important for the exchange rate, and, according to the latest data, it exceeds $630 billion. In this regard, we can conclude that the main reason for fluctuations in the ruble exchange rate is fears associated with an aggravation of the geopolitical situation. But they are already priced in to a greater extent. As a rule, as soon as the situation begins to discharge, the ruble rolls back, which we see today.

“SP”: – But what will happen to the ruble in the coming weeks? Will he continue to “jump” after every news?

– In general, the situation is rather difficult to predict. But I would say that if the pressure continues, the exchange rate could be 76-78 per dollar. If the situation calms down, the ruble exchange rate may reach 72 or even 70 per dollar.

The so-called geopolitical premium is in the course of 5-6 rubles. This can be determined by such an indicator as CDS (credit default swap – ed. note), which is called the cost of insurance against default. Yesterday it jumped above 150 points, although the normal level in November was about 80 points. Every 10 points of CDS, according to experience, approximately corresponds to the weakening of our currency by one ruble against the dollar. It turns out that the geopolitical premium today is 5-7 rubles.

FxPro Lead Analyst Alexander Kuptsikevich also told “SP” that the geopolitical risks for the ruble exchange rate are being realized right before our eyes. Moreover, the expert considers the rollback on January 14 to be a temporary phenomenon and does not exclude that in the near future both the ruble and Russian assets in general will sink even more.

– Now everything looks like the optimists were wrong, hoping to see a compromise, or at least hints of it, at the end of the negotiations on January 12-13. The second mistake, it seems to us, is an attempt to “catch falling knives” by buying Russian assets and the ruble right now.

Market participants in the morning hurried to take advantage of the fall of the ruble and the “blue chips” of the stock market to redeem yesterday’s decline. However, this is more like a habit of investors that has developed over the past couple of years to buy out the downturn immediately.

The tone of comments from politicians on both sides of the negotiating table forces us to prepare for a longer period of tough rhetoric. And this means a longer period of pressure on the Russian currency.

“SP”: – That is, everything is serious enough for the ruble?

— By and large, the ruble and the Russian economy face no less serious risks than in 2014, when US and EU sanctions and Russia’s reaction to them raised the volatility of the Russian market to the levels of the global financial crisis.

Geopolitics in the coming days or weeks crosses out strong fundamental reasons for the growth of the Russian ruble, such as strong consumer demand and expensive oil.

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