Ruble Drops to Record as Stocks Fall on Ukraine; Wheat Advances
By Ksenia Galouchko August 29, 2014
The ruble weakened to a record and stocks fell amid concern Russia may face more sanctions as fighting intensifies in Ukraine. Wheat extended its first monthly advance since April.
The currency weakened 0.5 percent to 36.9315 against the dollar at 2:15 p.m. in Moscow, after dropping to a low of 37.0260. The Micex Index slid 0.6 percent. Ukraine’s July 2017 Eurobonds fell for an eighth day, the longest slump since March 2013. Wheat rose a fourth day on concern the conflict will reduce supplies from the Black Sea region.
An escalation of fighting in eastern Ukraine prompted calls by the European Union to threaten further penalties and U.S. President Barack Obama said yesterday Russia faces “more costs and consequences” for violating the sovereignty of its neighbor. Ukrainian President Petro Poroshenko called the offensive a “de facto” incursion by Russia.
“Ukraine’s statements about Russia’s military presence on its territory are concerning signals and a clear symptom that there may be new sanctions,” Artem Roschin, a foreign-exchange dealer at OOO KB Aljba Alliance bank in Moscow, said by phone. “Investors are scared of intensified military activities and a start of military clashes between Russia and Ukraine.”
Sanctions already imposed by the U.S. and Europe are exacerbating a slowdown that threatens an economy teetering on the brink of a recession. Gross domestic product will grow 0.5 percent this year, the slowest since a 2009 contraction, according Economy Ministry forecasts.
More than 1,000 of Russian President Vladimir Putin’s troops are operating inside Ukraine, manning sophisticated weaponry and advising local separatists, the North Atlantic Treaty Organization said yesterday.
The escalation, denied by Russia, prompted a warning of “consequences” from U.K. Prime Minister David Cameron, and German Chancellor Angela Merkel said EU leaders would discuss new sanctions this weekend.
Today’s decline in the ruble sent it down 3.1 percent in August. The ruble weakened 0.4 percent to 48.6275 per euro, the third day of declines. The yield on benchmark ruble notes maturing February 2027 rose three basis points to 9.75 percent after gaining the most since March 12 yesterday. The currency is the worst performer against the dollar among 24 emerging markets this year after the Argentinian and Chilean pesos, data compiled by Bloomberg show.
Stocks fell for a second day, extending this week’s decline to 2.2 percent.
Morgan Stanley cut Russian shares to underweight from neutral, citing the rising risk of sanctions following the latest escalation in Ukraine, according to today’s e-mailed note.
“Escalation puts the ‘investability’ of Russia into question,” analysts led by Ronan Carr said in an e-mailed note. “In our worst-case scenario involving full sanctions, a material portion of the listed stock market in Russia could become uninvestable for many investors.”
The yield on Ukraine’s Eurobond rose 15 basis points higher to 12.37 percent, a three-month high.
Wheat futures were at $5.7675 a bushel on the Chicago Board of Trade today, set to gain 2.6 percent this week. They surged 8.8 percent in August, and reached $5.7925 yesterday, the highest since July 3. Futures rebounded 11 percent since touching a four-year low on July 29 as the conflict worsened.
Russia and Ukraine together will account for 21 percent of global wheat exports in 2014-15, according to U.S. Department of Agriculture data.
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