Effects of financial meltdown on the Russian market

The main concern for the Russians is the declining price or oil and the value of the ruble

“Black Monday” for the ruble and the Dow Jones

Cheap oil and the weakening of the Chinese economy has caused panic on global markets

«Черный понедельник» для рубля и Dow Jones.

Photo: NEWS/Pavel Baranov

Izvestia,

24 August, 2015

Via Yandex Translate

August 24th will go down in the history of the world exchanges as "black Monday." In the morning it became clear that trouble is inevitable. Amid falling oil prices (the cost of the futures on Brent crude oil with delivery in October 2015 on today's trading on the stock exchange ICE in London fell by 2.62 per cent, to $44,27 per barrel is the lowest price since 2009) plummeted Asian indices. Chinese CSI300 — by 7.25%, the Shanghai Composite index of Shanghai stock exchange 7.4%, the ChiNext index — to 7.67 per cent. Index Hong Kong stock exchange in the first minutes after the opening fell by 4.2%. The collapse could not prevent even the attempt of the Chinese government to stabilize the situation with the help of investments from the pension Fund. On the Tokyo stock exchange Topix index fell by 3.86%, the Nikkei fell by 3.21%. The index of the Taiwan stock exchange in Taipei hit of 7.46%.

The Russian market is expected to have a sharp weakening of the ruble and a sharp decrease in quotations of the RTS and MICEX indexes. At the auction at the Moscow exchange, the dollar rose to 71,32 ruble and Euro for the first time since December 2014 has exceeded the value of 83 rubles. At closing, the MICEX index fell 1.9%, while the RTS index tumbled of 4.16%. The official dollar exchange rate reached its historical high — 70,75 of the ruble. The Euro tomorrow amounted 81,15 ruble — just a day, it rose by 4.5 rubles, a penny from a "record".

European stock markets ended the trading session, falling to minimum values over the past few years. British FTSE 100 has decreased by 5.8% to 5831,59 point — the worst result since 2012. The pan-European FTSEurofirst 300 index fell by 7.2%, German DAX — by 4.9%, the French CAC40 — 5.6%. Capitalization of companies included in the pan-European FTSEurofirst 300 index, one day lost more than €400 billion.....

24 августа войдет в историю мировых бирж как «черный понедельник». Уже утром стало понятно, что беды не миновать. На фоне дешевеющей нефти (стоимость фьючерса на нефть марки Brent с поставкой в октябре 2015 года на сегодняшних торгах на бирже ICE в Лондоне упала на 2,62%, до $44,27 за баррель — это самая низкая цена с 2009 года) резко упали азиатские индексы. Китайский CSI300 — на 7,25%, индекс Shanghai Composite Шанхайской фондовой биржи — на 7,4%, индекс ChiNext — на 7,67%. Индекс Гонконгской фондовой биржи в первые минуты после открытия понизился на 4,2%. Обвалу не смогла воспрепятствовать даже попытка китайского правительства стабилизировать ситуацию при помощи инвестиций из пенсионного фонда. На Токийской фондовой бирже индекс Topix понизился на 3,86%, индекс Nikkei упал на 3,21%. Индекс Тайваньской фондовой биржи в Тайбэе обрушился на 7,46%.

Российский рынок ожидаемо отреагировал резким ослаблением рубля и резким снижением котировок индексов РТС и ММВБ. На торгах на Московской бирже доллар поднялся до 71,32 рубля, а евро впервые с декабря 2014 года превысил значение в 83 рубля. По итогам дня индекс ММВБ упал на 1,9%, а индекс РТС обвалился на 4,16%. Официальный курс доллара обновил исторический максимум — 70,75 рубля. Курс евро на завтра составил 81,15 рубля — всего за день он вырос на 4,5 рубля, немного не дотянув до «рекорда».

Европейские фондовые рынки завершили торги, упав до минимальных значений за последние несколько лет. Британский FTSE 100 сократился на 5,8%, до 5831,59 пункта — худший результат с 2012 года. Общеевропейский индекс FTSEurofirst 300 обрушился на 7,2%, немецкий DAX — на 4,9%, французский CAC40 — на 5,6%. Капитализация компаний, входящих в панъевропейский индекс FTSEurofirst 300, за один день потеряла более €400 млрд.

‘Oilageddon’ is Nearing as Oil Producers Scramble for Last bits of Market

Sputnik News,

24 August, 2015

Amid dramatically falling global oil prices that dipped below $40 a barrel on Monday, oil producing states already started to fight over the oil market, trying to sell as much oil as possible further aggravating the situation, Muhammad As-Sayyad, the former head of Bahrain’s National Oil and Gas Authority (NOGA), told Sputnik in an interview.

The current drop in energy prices started last fall due to the oversupply of oil. Normally, when these kinds of situations occur, OPEC interferes and cuts global oil production. However, this isn't the case this time around — OPEC, led by Saudi Arabia, refused to decrease production, leading to a record amount of oil being pumped out of refineries despite the steady and ongoing decrease in prices.

This resulted in a free-for-all situation in which oil-producing nations refuse to sacrifice their own share of production for the sake of increasing global prices. And now, as prices keep falling, it has led to the struggle over the oil market and potential customers, as oil producers try to sell as much oil as they can, As-Sayyad explained.

The situation is expected to get worse considering that Iran, which has been recently freed from sanctions and thus has an extra quota of 4 million barrels a day, is looking to flood the oil market with more crude. There certainly are potential customers willing to buy Iranian oil and that would lead to an even further decrease in prices, the former head of NOGA told Sputnik.

Oil producing nations will be hit hardest by the current situation. Budgets of the Persian Gulf countries, for example, depend 80 percent on oil revenues (on average). Following the current drop in prices, it's clear that the future budget of these countries will suffer dramatically. They will either have to increase their non-oil revenues or significantly reduce their spending. Harsh austerity policies are expected to happen, As-Sayyad said.

Oil could fall to $25 per barrel by the end of the year

Нефть может упасть до $25 за баррель к концу года

Photo: NEWS

Founder and chief investment officer specializing in oil investment Fund Andurand Capital Pierre Anduran told "Izvestia" that sees the potential for reducing oil at the end of 2015 to $25-30 per barrel. It threatens the Russian currency falling below the level of 100 rubles per dollar.

Russia's economic crisis

Having predicted the collapse of the Russian economy it won’t be easy to admit its recovery

World Bank admits peak of Russia economic crisis over

RT

18 April, 2015

The World Bank has agreed with President Vladimir Putin’s comment that Russia has successfully managed to overcome the worst of its current economic difficulties due to the government’s fiscal and monetary policy.

In the last two months, the level of confidence in the Russian economy has slightly strengthened and the ruble rallied due to fiscal and monetary policy, World Bank Vice President for Europe and Central Asia Laura Tuck told TASS, commenting on Putin’s statement that the country’s economy has overcome the worst.

However, Tuck warned that the downturn is not over yet and Russia is likely to face a number of economic challenges in future, as there is still much uncertainty in how oil prices will fluctuate. Tuck believes they are most likely to go down again and return back to what is considered a ‘new normal’.

Moreover, the adjustment to new conditions may still continue to be rather painful, she said, referring to the redistribution of various factors necessary to take advantage of a lower ruble’s exchange rate.

READ MORE: Ruble passes 50 against USD for 1st time since November

On April 16, Vladimir Putin said during his annual Q&A session that Russia's economy has passed its most difficult period, as the government managed to prevent the rise of inflation and to achieve GDP growth of 0.6 percent in 2014. At the same time, Putin acknowledged the Russian economy still has difficulties to deal with.

The Russian economy

What sanctions can achieve

Russia Rebounds, Despite Sanctions

Vineyard of the Saker,
22 March, 2015


By Matthew A. Winkler for ==>>Bloomberg<<== (yes, Bloomberg not the Kremlin’s press office!)


Sanctions meant to punish Russia for snatching Crimea from Ukraine one year ago were supposed to hurt Russian business. And they did. Russian stocks, bonds and commodities had the worst performance in 2014 of those in any emerging market.

That was then. Now the picture is changing, with investors starting to favor Russia in 2015. The ruble, which became the world’s most volatile currency last year after President Vladimir Putin’s land grab, is stabilizing. The swings in its value narrowed this year more than any of the other 30 most-traded currencies.


Source: Bloomberg

Investors in Russian government securities denominated in rubles have earned the equivalent of 7 cents on the dollar so far this year, as measured by the Bloomberg Russia Local Sovereign Bond Index. In contrast, anyone holding similar government debt in emerging markets across-the-board has lost 1.1 percent in 2015.

The picture is even rosier for Russia’s corporate bondholders; they’ve had a 7.3 percent total return in 2015, leading the gains in the index for emerging market corporate bonds compiled by Bloomberg. And while shareholders in the global emerging market stocks measured by the MSCI Emerging Market Index gained 1.7 percent this year, the 50 Russian stocks in the Micex index are up 11.9 percent — better than the Standard & Poor’s 500 or any other North American market.

The ruble’s relative value helps explain why there are some signs of confidence in Russia. Although the ruble remains the most volatile of the 31 most-traded currencies this year, its swings are narrowing. This is visible in implied volatility, a measure of traders’ bets on how much the currency’s value will change day-to-day. After surging in late 2014 amid the widening Ukraine crisis, the ruble now is fluctuating the way it did in 2009.


Business also appears to be on the rebound. Some 78 percent of the Russian companies in the Micex index showed greater annual sales growth than their global peers, even though the shares of these Russian companies lagged behind their international competitors, according to data compiled by Bloomberg. That’s consistent with a two-year improvement in the relative value of Russian companies.

One possible reason for the growth? Sanctions. With foreign goods unavailable, Russians had to choose homegrown products and service.

For all the disruption caused by the sanctions, Russian companies represented in the Micex index are more profitable measured by Ebitda margins (earnings before taxes, depreciation and amortization) than the rest of the companies included in the global MSCI Emerging Market Index.

A number of Russian companies are outperforming their global peers. Magnit PJSC, which operates a chain of discount supermarkets with a market capitalization of $16 billion, is one worth noting. The retailer’s one-year revenue growth was 31.66 percent, overwhelming the 0.87 percent increase in sales from its global competitors. Novatek OAO, a $22.8 billion independent producer of natural gas in western Siberia, is another. The company saw its sales increase 19.5 percent, compared with 0.76 percent from its global sector. And then there’s Rosneft, a $41 billion international brand with production in western Siberia, Sakhalin, the North Caucasus and the Arctic, which reported an 18.26 percent annual sales growth when its international competitors disclosed a revenue increase of just 0.76 percent. By any conventional measure, the shares of these companies are heap.


Source: Bloomberg

Are global investors optimistic about corporate Russia’s continued resilience? It seems so. The shares outstanding of the largest U.S.-based exchange traded fund tracking Russian companies — more than 90 percent of the companies in the ETF are Russian — surged 5 percent so far this year. At the same time, an ETF that’s a proxy for money flows into and out of Russian equity shows a 27 percent increase. Putin’s Ukraine adventure has led to instability in the region and frayed relations with the West; what it hasn’t destroyed is confidence in corporate Russia.

Matthew Winkler, editor-in-chief emeritus of Bloomberg News, writes about markets

The world economy - news - 01/06/2014

It must be serious for Radio New Zealand to mention it. Apparently, they mentioned the "deflation" word!

Stock prices fall as oil prices drop

Stock prices have fallen on global markets, with nervous investors spooked by tumbling oil prices and the possibility of Greece leaving the eurozone if a left-wing party takes power there later this month.

Radio New Zeland,

6 January, 2014

The steady decline of oil prices since mid-2014 has continued, with the benchmark Brent crude price at a near-six-year-low.

While United States and European stocks had risen overnight, rebounding from heavy losses, Japanese shares posted their worst one-day drop in 10 months overnight.

New Zealand's sharemarket had taken less of a knock, with the benchmark top 50 index dropping about half a percent yesterday.

The price of oil has fallen to about $US51 a barrel.

The concern was that a supply glut would hurt the earnings of oil companies and exacerbate disinflationary pressure world-wide.

Investors also feared the left-wing Syriza Party could win a general election in Greece on 25 January.

The party had threatened to renounce the country's bailout agreement with the European Union, raising the risk of a sovereign default.

ANZ chief economist Cameron Bagrie said tumbling oil prices were like a tax cut for New Zealand consumers.

Mr Bagrie said New Zealand markets were holding up reasonably well and the falling oil prices should flow on to help retailers.

He said New Zealand had a few economic issues to manage but was still on track for 3 percent growth over the next 12 months.

From RT - 

Oil Slump: Prices fall past $50 for first time in 5 years

Nikkei leads downward trend

Wall Street's sharp sell-off has spread to Asian sharemarkets as troubles in Europe and sliding oil prices rattle investors' confidence.

Radio New Zeland,

6 January, 2014

The Nikkei share average is down about 2.6 percent. Photo: AFP

Australian stocks have also been hit hard, while New Zealand shares also fell today.

Analysts say tumbling oil prices sparked the sell-off, as well as worries about political uncertainty in Europe as Greek elections loom.

Wall Street's benchmark Standard & Poor's 500 index plunged more than 1.8 percent, and the selling continued across the Pacific to Japan and Australia.

Japan's Nikkei stocks index dropped 2.4 percent, and all markets in the region were hurt, while Australia's ASX 200 has lost nearly 2 percent so far in the day.

The Shanghai Composite was down 1.27 percent, while in Hong Kong, the benchmark Hang Seng was down 1.04 percent in early trade.

New Zealand stocks fared better, but the benchmark top 50 Index still dropped about half a percent.

A senior strategist at Daiwa Securities in Tokyo, Hirokazu Labeya, said the falling oil price showed few signs of slowing.

"Falls in oil prices are going beyond many people's expectations. This will put pressure on the earnings of U.S. energy firms."

That's the headlines. Now for some analyisis....

Worst Start To A Year Ever, Stocks Down 5 Days In A Row

Zero Hedge

6 January, 2014

How many are feeling after the worst 3-day start to a year EVER...

Market internals triggered a 2nd Hindenburg Omen...

The S&P 500 is down 5 days in a row - the first time since Sept 2013... with the biggest 5-day decline since Jim Bullard saved the world... (finding support at its 100DMA for now)

And broad equity indices bounced intraday off that 100DMA support (in Dow and S&P) - with JPY ramping stocks back to VWAP...

From the Russell 2000's peak, stocks are still down notably...

But today had a similar feel to yesterday with some afternoon dip-buyers vanquished... (but the S&P 500 just held 2,000)

As Energy stocks tumbled back towards oil's weakness...

as Energy credit risk topped 1000bps again and broad spreads widened...

As WTI traded with a $47 handle!! After Saudi "demand" comments...

The biggest news of the day - apart from the worst start to the year in stocks ever... and oil trading with a $47 handle!! - was the total collapse in bond yields...

The USD rose modestly in the day (rallying during the US afternoon unlike yesterday)...

but overall JPYwas still in charge of stocks...

Once again - despite USD gains, Gold and silver rose with the yellow metal testing $1220... (and silver surging)

Charts: Bloomberg

Bonus Chart: For The White House onlookers - NOT Europe...

Greek Bonds Tumble As Report Sees "Decisive Victory" For Syriza

Zero Hedge

6 January, 2014

The Greek 3Y-10Y yield curve is back over 400bps inverted this morning as bond (and stock) prices re-tumble following a new reports. 

As The FT reports, forecasting group Oxford Economics says it has carried out an "in-depth" analysis of opinion polls ahead of Greece's snap general electionon January 25, which shows that the radical Syriza party is on course to win a "clear mandate" to push through anti-austerity policies. Will German worry now?

The Greek yield curve has moved even more inverted...

As The FT reports,

[Oxford Economics] analysis shows that Syriza's support is sufficient to secure a workable majority in Greece.The report says:

 

36% of the final vote is the approximate threshold beyond which a strong anti-austerity government is plausible. Syriza's performance has been consistent with this in each of the last 20 opinion polls, and over 40% of the vote on average in the last five.

 

The report, written by Oxford Economics' Gabriel Sterne, points out that the ruling New Democracy party could close the gap, if a tactic pays off to portray the election as effectively a referendum on an exit from the euro.

  

But Mr Sterne adds:

But the binary (in or out) nature of the vote decision may also help Syriza to achieve a decisive victory by squeezing out smaller parties (eg. Independent Greeks), as voters herd to the big two.

And as Reuters adds, Syriza's leader Tsipras has warned Draghi that is QE is undertaken, it must include buying Greek bonds...

Greek leftwing opposition leader Alexis Tsipras said theEuropean Central Bank (ECB) could not exclude Greece if it decides to move to a full "quantitative easing" program to stimulate the euro zone's faltering economy. 

...

Tsipras said he hoped ECB President Mario Draghi would decide to go ahead with the program and said Greece could not be shut out, as some economists and politicians from countries including Germany have suggested.

 

"Quantitative easing by the ECB with direct purchases of government bonds must include Greece," Tsipras said.

...

In a speech laced with barbs against German Chancellor Angela Merkel and finance minister Wolfgang Schaeuble, Tsipras said his party would roll back many of the austerity policies imposed by the bailout "troika".

 

"Austerity is both irrational and destructive. To pay back debt, a bold restructuring is needed," he said.

*  *  *
For now, bonds don't seem to care. As bond prices slide to new lows..

How much of this is real and how much is wishful thinking on the part of a Russophobic British media?

Russia faces 'perfect storm' as reserves vanish and derivatives flash default warnings

BNP Paribas says Russia no longer has enough reserves to cover external debt and enters this crisis 'twice as levered' as it was before the Lehman crash

Ambrose Evans Pritchard

The Telegraph,

6 January, 2014

Russia’s foreign reserves have dropped to the lowest level since the Lehman crisis and are vanishing at an unsustainable rate as the country struggles to defends the rouble against capital flight.

Central bank data show that a blitz of currency intervention depleted reserves by $26bn in the two weeks to December 26, the fastest pace of erosion since the crisis in Ukraine erupted early last year.

Credit defaults swaps (CDS) measuring bankruptcy risk for Russia spiked violently on Tuesday, surging by 100 basis points to 630, before falling back slightly.

Markit says this implies a 32pc expectation of a sovereign default over the next five years, the highest since Western sanctions and crumbling oil prices combined to cripple the Russian economy.

Total reserves have fallen from $511bn to $388bn in a year. The Kremlin has already committed a third of what remains to bolster the domestic economy in 2015, greatly reducing the amount that can be used to defend the rouble.

The Institute for International Finance (IIF) says the danger line is $330bn, given the dollar liabilities of Russian companies and chronic capital flight.

Currency intervention did stabilise the exchange rate in late December after a spectacular crash threatened to spin out of control, but relief is proving short-lived.

The rouble weakened sharply to 64 against the dollar on Tuesday. It has slumped moe than 20pc since Christmas, with increasing contagion to Belarus, Georgia and other closely-linked economies.

There are signs that Russia’s crisis may undermine President Vladimir’s Putin’s Eurasian Economic Union before it has got off the ground. Belarus’s Alexander Lukashenko is already insisting that trade be carried out in US dollars, while Kazakhstan’s Nursultan Nazarbayev warned that the Russian crash poses a “major risk” to the new venture.

The rouble is trading in lockstep with Brent crude, which has continued its relentless slide this week, falling to a five-year low of $51.50 a barrel. “If oil drops to $45 or lower and stays there, Russia is going to face a big problem,” said Mikhail Liluashvili, from Oxford Economics. “The central bank will try to smooth volatility but they will have to let the rouble fall and this could push inflation to 20c.”

Under the Russian central bank’s “emergency scenario”, GDP may contract by as much as 4.7pc this year if oil settles at $60. The damage could be worse following the bank’s contentious decision to raise rates from 9.5pc to 17pc in December. BNP Paribas says that each 1pc rise in rates cuts 0.8pc off GDP a year later.

BNP’s Tatiana Tchembarova said the situation is more serious than in 2008, when Russia had to spend $170bn to rescue its banks. This time it no longer has enough reserves to cover external debt, and it enters the crisis “twice as levered”.

Mr Putin has imposed partial capital controls by forcing companies to repatriate foreign currency. This has bought time and shored up the rouble for a few days, but it is a disguised form of reserve depletion since many of these companies will need dollars to repay debt.

Many of these companies are pillars of the Russian economy or energy champions. Their dollar debts are implicitly liabilities of the Russian state since these firms cannot be left to default. The oil giant Rosneft has requested $46bn in state aid to help meet repayments and cover investment.

Igor Sechin, Rosneft’s chairman, expects oil to recover in the second half of 2015 and fluctuate between $70 and $75 but warned that the group would have to retrench. “Some high-cost projects will be postponed,” he said. Analysts at Sberbank said the group faces a “very difficult year”.

The total foreign debt of Russian companies and state entities is $654bn. They have to repay roughly $10bn a month since they are shut out of international capital markets and cannot roll over loans.

The IIF’s Lubomir Mitov said the oil crash could leave Russia with a current account deficit of 3.5pc of GDP. Each $10 fall in crude cuts export revenue by 2pc of GDP. This comes on top chronic capital flight and the collapse of inward flows due to sanctions. The overall “financing gap” could soon reach 10pc of GDP, putting enormous strain on the rouble. “It’s a perfect storm,” he said.

The interest costs on hard-currency debt have suddenly doubled in rouble terms. While commodity exporters earn matching dollars, Russian property developers and domestic companies with dollar-debt have no such buffйr.

Russia’s RTS index of stocks has fallen by 62pc since early 2011 but smaller companies have been hit far harder. Kingsmill Bond, Sberbank’s chief strategist, said Russian equities are among the cheapest in the world and are trading on fear, ignoring the country’s strategic depth. “People have been selling 

indiscriminately. Once the oil price stabilises, it will be a perfect time to buy illiquid domestic stocks, like the homebuilder ISR,” he said.

Mr Bond said brave investors who bought Russian stocks at the nadir of the crisis in 2008-2009 were rewarded with gains of up 1,000pc. “First we have to wait for oil to hit bottom,” he said.

Euro hits 9-year low on Grexit rumours

The German government has insisted it wants Greece to stay in the eurozone and will not be ‘blackmailed’ into changing the terms of the country’s bailout

• Oil prices have continued to slide on Monday. Benchmark Brent crude is hovering above $54 a barrel and expected to fall further.
  
  
• The FTSE100 has extended its losses, down 1.35% to 6,457 points.
  
  
• Germany’s DAX is down 1.43%, after data showed weaker-than-expected inflation in December, raising expectations that the European Central Bank will be forced to act to curb deflationary pressures in the eurozone.
  
  
• A spokesman for Angela Merkel has rebutted reports that Germany expects Greece to leave the eurozone. But a report that German officials are relaxed about a Grexit has opened up new rifts in Germany’s political class
  
  
  
  
  http://www.theguardian.com/business/blog/live/2015/jan/05/euro-hits-9-year-low-on-grexit-rumours-live