Ruble Rallies With Russia Stocks as Troop Pullback Eases Tension

The ruble rose to near a four-month high and Russian stocks gained as President Vladimir Putin said he pulled back troops from near Ukraine’s border, signaling tension may ease before the country’s presidential election.

The ruble rose 0.6 percent to 40.3095 against the central bank’s target dollar-euro basket by 6 p.m. in Moscow, the strongest level since Jan. 23. The Micex Index closed up 1.6 percent at 1,413.85 after three weekly gains. OAO Gazprom rose for a ninth day, the longest rally since at least January 2006. The yield on local-currency debt due February 2027 fell eight basis points to 8.95 percent, the lowest since April 4.

Putin ordered forces in the Rostov, Belgorod and Bryansk regions to return to their bases after completing exercises, the presidential press service said, while Ukraine’s Border Service said it had seen a reduction in Russian activity on the frontier in the past week, according to a spokesman. Gazprom surged 2.6 percent on bets Putin’s visit to China this week will move the country closer to a gas-supply deal it has sought for a decade.

“Putin’s order to withdraw troops is a positive factor for the markets and will support asset prices,” Mansur Mammadov, a money manager at Kazimir Partners Ltd. in Moscow, which oversees $300 million in emerging-market equities, said by phone. “This move signals de-escalation of the conflict.”

Russian markets tumbled last month on concern the U.S. and European Union will broaden sanctions to target industries. The country’s equities trade at 5.1 times estimated earnings, the lowest valuation among 21 emerging markets tracked by Bloomberg.

Gazprom Deal

Putin, accused by the government in Kiev of fomenting unrest in the east after annexing Crimea in March, promised a withdrawal of Russian forces from the border two weeks ago. The U.S. and its European allies say he never fulfilled that pledge.

Gazprom may agree to ship 1.14 trillion cubic meters of gas to China over 30 years for about $350 per 1,000 cubic meters, Izvestia daily reported today. After failing to agree on financial terms in previous talks, rising demand for fuel in China has pushed prices to a level that will probably be acceptable to both sides, Bank of America Corp. said in a May 16 report.

“Investors are betting the stars have aligned for a Russian-Chinese gas deal,” Joseph Dayan, head of markets at BCS Financial Group in London, said in e-mailed comments. Even so, “the upper hand in negotiations shifted to the Chinese side due to Russia’s urgency to diversify away from Europe,” he said. “This might lead to further concessions.”

Ukraine Election

An opinion poll before Ukraine’s May 25 presidential election placed billionaire Petro Poroshenko, who owns a confectionery empire, first with 40 percent. U.S. and U.K. diplomats last week raised the prospect of punishing Russia with economic sanctions if the election is undermined.

“The market seems to be pricing the recognition of the result of Ukraine’s upcoming elections,” Dmitry Dorofeev, a money manager at BCS Financial Group in Moscow, said in e-mailed comments. “Hence the smaller risk of more severe sanctions.”

The ruble strengthened 0.7 percent to 34.5245 versus the dollar and rose 0.6 percent to 47.37 per euro.

Ukraine’s Eurobonds due in 2017 rallied, sending the yield down 89 basis points to a five-week low of 11.59 percent. Bank of America and Commerzbank AG raised their recommendations on the debt, citing diminishing risks from the standoff.

The volume of net short positions in the ruble against the dollar on Chicago Mercantile Exchange declined to 24 percent compared with 53 percent on March 18, showing traders are reducing their bets on further ruble weakening, VTB Capital analysts Maxim Korovin and Anton Nikitin said in an e-mailed note.

Russian companies, including the biggest exporters, will pay as much as 943 billion rubles ($27 billion) in taxes in the second half of May, six analysts surveyed by Bloomberg said, potentially creating additional demand for the currency.

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