Russian stocks jumped the most in four months, the ruble rebounded and credit risk receded as President Vladimir Putin outlined a peace plan for Ukraine after agreeing with the country’s leader on steps toward a cease-fire.
The Micex Index rallied 3.5 percent, the largest advance since May 7, to close at 1,449.29. The ruble, which fell to a record low two days ago, appreciated 1.7 percent to 36.8445 per dollar by 6:52 p.m. in Moscow. Russia’s local-currency bonds had the biggest increase since March, while its five-year credit default swaps slid the most in almost three years.
Currencies and stocks across emerging markets gained on optimism the peace plan will ease the five-month conflict in Ukraine’s easternmost regions that the United Nations estimates has cost at least 2,600 lives. Putin called for an end to the rebels’ offensive in the country’s easternmost regions and urged the withdrawal of the Ukrainian military from residential areas as part of a seven-point proposal he presented today in Ulaanbaatar, Mongolia. A final agreement may be reached at a Sept. 5 meeting, he said.
The announcement “removes a large part of risks of further escalation of the crisis and might signal the end of the crisis in general,” Vladimir Osakovskiy, an economist at Bank of America Corp. in Moscow, said by e-mail today. “The development also dramatically cut the risk of a new round of sanctions against Russia.”
The ruble surged the most against the dollar among more than 170 currencies monitored by Bloomberg globally. The Hungarian forint strengthened 0.6 percent and Poland’s zloty added 0.3 percent against the euro, while the Turkish lira climbed the most in a week versus the U.S. currency. The WIG30 Index in Warsaw and BUX Index in Budapest rose at least 1.9 percent.
While markets rallied on the truce, the European Commission planned to continue preparations on the next round of Russian sanctions, spokeswoman Maja Kocijancic told reporters today. The EU and the U.S. accuse Putin of deploying troops to help buoy an insurgency in Ukraine’s east that has escalated since he annexed the Crimea peninsula in March. Russia has repeatedly denied involvement.
“Russia has crossed the Rubicon, therefore it is unlikely there will be a permanent agreement in the near future,” Peter Duronelly, a strategist and money manager who helps oversee 2.5 billion euros ($3.3 billion) at Aegon NV’s Hungarian fund management unit, said by e-mail.
U.S. President Barack Obama, in Estonia today to reassure eastern European NATO members of their security before heading to the alliance’s summit in the U.K., said “we haven’t seen a lot of follow-up on so-called announced cease-fires.”
Ukrainian President Petro Poroshenko said he and Putin agreed on a “cease-fire regime” and the steps toward peace.
Ukrainian Eurobonds maturing in July 2017 ended a 10-day rout, sending the yield down 93 basis points to 12.61 percent. Russia’s dollar-denominated securities maturing in March 2030 jumped, with the yield dropping 35 basis points, the most in more than four years, to 4.71 percent. The rate on the 2027 ruble notes declined 32 basis points to 9.51 percent.
Five-year credit default swaps, contracts insuring Russian debt against non-payment, fell 36.5 basis points to 231, the largest retreat since October 2011.
“We’re currently busy buying the ruble and ruble assets,” Vladimir Tsuprov, the St. Petersburg-based chief investment officer of TKB BNP Paribas, said by e-mail. “We started buying before the statement since this morning there were signals that this is possible.”
Russian assets have been battered since the U.S. and European Union imposed a new round of sanctions on some companies and banks in July. Putin retaliated last month with a food-import ban, stoking bets the crisis will worsen and exacerbate an economic downturn that threatens Russia with its first recession since 2009.
Three-month implied ruble volatility, which fell for the first time in five days today, remains the highest in emerging Europe. Russia’s currency has depreciated 11 percent against the dollar this year, the worst performer after the Argentine peso among 24 developing nations.
All but four of the Micex’s 50 members advanced, led by OAO Sberbank, the nation’s biggest lender, jumping 6.6 percent. OAO Gazprom, Russia’s natural-gas export monopoly, climbed 4.1 percent. Sixty percent of the gauge’s stocks were trading below their 50-day moving average yesterday.
“The mood is definitely positive but there’s no absolute certainty that the cease-fire will lead to a final resolution of the conflict,” Igor Lavrentiev, a money manager at Libra Capital Investment Co. in Moscow, said by e-mail.