Poroshenko Flummoxes Investors With About-Face on Truce
Ukraine’s leader sent financial markets into turbulence as he backtracked on talk of an end to five months of violence in his nation’s east.
President Petro Poroshenko announced yesterday that he’d hammered out a deal with Vladimir Putin to end the deadly unrest, sending global stocks and emerging-market currencies surging. When he later removed the word “permanent” from his cease-fire statement and Putin’s spokesman said there had been no deal, markets gave back some of the gains.
“Confusion prevails over an alleged cease-fire agreement,” Otilia Dhand, an analyst at Teneo Intelligence in London who specializes in eastern Europe, said in an e-mailed research note. “The contradictory announcements around the cease-fire might also undermine Poroshenko’s standing vis-à-vis Putin, with potential negative implications for his popularity at home.”
Investors are sensitive to breakthroughs in Ukraine’s worst crisis in more than two decades of independence, with Europe preparing a new wave of sanctions against Russia, which it blames for fueling its neighbor’s insurgency. While Putin said Russia can’t agree on a truce because it’s not involved in the conflict, global assets rallied as he outlined a peace plan.
Germany’s DAX equity index advanced as much as 1.5 percent after his initial announcement and then fell 0.9 percent within the same hour. Ukraine’s UX gauge rose as much as 5 percent before paring its gain to 1 percent at the close and falling 0.2 percent by 1:29 p.m. in Kiev today. Hungary’s forint moved 0.5 percent in each direction against the euro within an hour of Poroshenko’s initial statement.
Attempts to obtain clarification of his comments didn’t yield results. Repeated calls and text messages to the mobile phones of Poroshenko’s spokesmen, Svyatoslav Tsegolko and Irina Friz, went unanswered. The president’s Twitter followers could be forgiven for thinking Ukraine’s war was over as his account on the social network still displays the original statement.
Putin’s spokesman Dmitry Peskov said that while the two leaders mostly agreed on steps needed for a truce, Russia can’t reach such an accord as it’s not party to the conflict.
Even so, some investors found reason for cheer as Putin said he backed the idea of a cease-fire and outlined a seven-step path to peace. During a visit to Mongolia, the Russian leader 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 his plan.
Those comments helped the MSCI Emerging Markets Index add to its gains throughout the European day yesterday, reaching the highest since August 2011. Russia’s Micex equity benchmark extended its rally to 3.5 percent, its best session in five months, before falling 0.4 percent today.
Ukraine’s dollar bonds due in 2017 gained for a second day, cutting the yield 6 basis points to 12.49 percent after a 100 basis point drop yesterday.
Ukraine still had the last word, once again leaving investors guessing as to the outcome of the day’s diplomacy.
Prime Minister Arseniy Yatsenyuk released a statement accusing Russia of violating all previous agreements on the conflict. He called Putin’s latest proposals “window dressing” to help dodge a fresh bout of European Union sanctions and said his “true plan” is to ruin Ukraine and restore the Soviet Union.
NATO’s top commander, U.S. Air Force General Philip Breedlove, echoed Yatsenyuk’s assessment today, saying at a summit in Newport, Wales that he saw little credibility in Putin’s proposals.
In Ukraine, the fighting continued with government troops killing 120 Russian and rebel soldiers in 24 hours, Ukrainian military spokesman Andriy Lysenko told a briefing in Kiev.
“Russian markets have been rallying on the back of nothing,” Timothy Ash, London-based chief emerging-markets economist at Standard Bank Group Ltd., wrote by e-mail in reaction to the casualties. After the “phoney war, now the phoney cease-fire,” Ash wrote.