Russian stocks and bonds rallied the most in seven weeks and the ruble gained as President Vladimir Putin said he was pulling troops away from the Ukrainian border while urging separatists to delay a referendum to ease tension.
The Micex Index jumped 3.4 percent to 1,363.48, the biggest increase since March 18. Yields on ruble-denominated debt due in February 2027 fell 33 basis points to 9.14 percent. The currency strengthened 1.1 percent to 41.2461 against the central bank’s target dollar-euro basket at 6 p.m. in Moscow when the central bank ends open-market operations. Ukrainian stocks, bonds and currency gained.
Investors are anticipating that the shift in rhetoric signals a new tack from Putin that may lower the likelihood the U.S. and European Union will impose further sanctions on Russia. Putin called on separatists in southern and eastern Ukraine to postpone votes over regional autonomy planned for May 11 and said the country’s presidential election set for later this month was a step in the right direction.
“The markets are cutting the probability of sanctions in the near future,” Vladimir Miklashevksy, a strategist at Danske Bank A/S in Helsinki, said by e-mail. “The ruble is celebrating.”
The Donetsk and Luhansk regions should delay the referendums to help establish dialogue with the government in Kiev, Putin said today in Moscow at a meeting with Didier Burkhalter, chairman of the Organization for Security and Cooperation in Europe. Violence in Ukraine must stop for any dialogue to begin, Putin said.
The comments came a day after Russian Foreign Minister Sergei Lavrov called on Ukraine to postpone the presidential ballot scheduled for May 25 and draft a new constitution first.
The RTS Index of dollar-denominated shares jumped 4.7 percent to 1,227.75 today, the biggest advance among 93 gauges tracked by Bloomberg worldwide. The Bloomberg index of the most-traded Russian companies in the U.S. surged 3.3 percent to a three-week high of 83.48 in New York. Futures on the RTS measure slipped 0.6 percent to 119,710 in U.S. hours.
“Putin’s statements don’t carry much credibility given his previous history,” Michael Wang, an emerging-markets strategist in London at Amiya Capital LLP, said by e-mail. “I wouldn’t put too much weight on his promises until we have more proof of his intentions. He’s made some conciliatory promises in the past that didn’t come to much.”
The ruble gained 1.4 percent to 34.9295 versus the dollar and traded 1.5 percent stronger at 48.6025 per euro. Russia’s currency has lost 5.9 percent per dollar this year, the third-worst performance among 24 emerging-market currencies tracked by Bloomberg.
Bank Rossii raised its key interest rate by 50 basis points on April 25 to shore up the currency, after a 150 basis-point increase on March 3. The central bank said the increase in rates will help sustain inflation below 6 percent in 2014 after it accelerated to 7.3 percent in April.
“What Putin has said today confirms our baseline that Russia is unlikely to invade Ukraine, which is clearly positive,” Vadim Khramov, chief Ukraine economist at Bank of America Merrill Lynch, said by phone from London. “It sounds like Russia’s general attitude has slightly changed toward the understanding that they don’t want to be in this military conflict.”
Ukraine bonds gained after Putin’s comments and as the country received the first $3.2 billion tranche in aid from the International Monetary Fund.
The yield on the government’s April 2023 Eurobond tumbled 52 basis points, the biggest decline in almost six weeks, to 10.19 percent. The benchmark stock gauge jumped 2.1 percent and the hryvnia climbed 1.5 percent against the dollar.
“If there is no escalation with Russia and there is no annexation and no separation, which we considered to be the main risks to financing, then the IMF program is likely to be on track,” Khramov said.
German Foreign Minister Frank-Walter Steinmeier called on May 6 for a “new Geneva conference” in which “we agree to stop the bloodshed and start to defuse the conflict and go toward a political solution” after meeting his counterparts from Russia and Ukraine.
Shares on the Micex are valued at 0.67 times net assets, or book value, after last week dropping to the cheapest level since 2009, data compiled by Bloomberg show.