The ruble weakened the most in more than two weeks and the Micex Index (INDEXCF) fell as gas producer OAO Gazprom slumped on concern it won’t be paid for supplies to Ukraine after talks on energy prices failed.
Russia’s currency depreciated 0.7 percent to 40.1747 against Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow, the most since May 30. The equities gauge ended a four-day rally and closed 0.5 percent lower at 1,493.93. The yield on ruble debt maturing February 2027 rose 16 basis points to 8.72 percent. State-controlled Gazprom, which has the largest weighting on the Micex, fell 0.8 percent after losing as much as 2.6 percent.
Russia cut gas supplies to Ukraine’s pipeline network after the talks broke down and said the country will only receive the fuel when paid for in advance due to “chronic non-payment” of its bills. Ukrainian energy company NAK Naftogaz Ukrainy owes Gazprom about $4.5 billion for gas already supplied. Bank Rossii left its main rate unchanged at 7.5 percent and said it may continue tightening policy if inflation risks materialize.
“Gazprom didn’t receive a payment from Ukraine,” Alexei Kokin, an analyst at UralSib Capital in Moscow, said by phone. “This is negative because now it’s unclear when they’ll get the money. Perhaps they’ll have to write down a part of the debt -- $4 billion is a significant sum and would impact net income.”
The European Union gets about 30 percent of its gas from Russia and half of that passes through Ukraine. Shipments to the region were disrupted in 2006 and 2009 when Russia shut off supplies to its neighbor during price disputes. Russia rejected price proposals from Ukraine backed by the EU, according to a statement on the Ukrainian government’s website.
Gazprom’s dollar bonds due 2022 slumped, pushing the yield up 19 basis points, the most since April 25, to 5.29 percent. In eastern Ukraine, clashes between government forces and pro-Russian insurgents continued.
Ukraine had to pay $1.95 billion by 10 a.m. Moscow time today to partially cover its debt for past supplies, according to Gazprom. Ukraine refused to pay after Russia raised the gas price by 81 percent in April.
“Geopolitical tensions continue to rise,” Oleg Shagov, head of equity research at OAO Promsvyazbank, said by phone. “The situation in Ukraine is particularly responsible.”
Gazprom filed a lawsuit against Naftogaz in Stockholm today, seeking $4.5 billion in debt in accordance with a gas supply contract in place since 2009, the Russian company said in an e-mailed statement. Naftogaz is suing Gazprom, also in Stockholm, for $6 billion it says it overpaid for gas, according to its press service.
Russia’s central bank will “continue increasing the key rate” if “existing inflation risks materialize, and threats to medium-term inflation targets emerge,” the bank said in a statement today. The inflation rate will probably peak in June, then fall to about 6 percent by year-end, partly because of the recovering currency, central bank First Deputy Chairman Ksenia Yudaeva said in a June 5 interview.
“The central bank didn’t move the needle with this decision as geopolitical risks currently outweigh” everything else, Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments.
The ruble lost 0.8 percent against the euro to 46.96 and 0.5 percent to 34.6230 per dollar.
Brent crude added 0.2 percent to $112.69 a barrel in London, the fourth day of gains. Oil producers rose, with OAO Lukoil increasing 2.4 percent, while OAO Rosneft advanced 1.5 percent. Russia receives about half of its budget revenue from oil and natural gas sales. Violence in Iraq will probably keep the oil price in a range of $105 to $115 a barrel, Bank of America Corp. said in an e-mailed report.
“The fact that the market has pared its earlier declines is tied to the growth in oil prices,” Vadim Bit-Avragim, who helps oversee about $4.1 billion at Kapital Asset Management LLC in Moscow, said by e-mail.
The relative strength index for the Micex dropped to 68.6 after surpassing the threshold of 70 on June 11 that to some analysts signals a security has been overbought. Ninety-day historical volatility subsided to 30.1, according to data compiled by Bloomberg.
The Micex entered a bull market on June 6 after climbing more than 20 percent from a low on March 14. Russian stocks are the cheapest among 21 emerging markets tracked by Bloomberg, trading at 5.4 times projected 12-month earnings.