Bearish Ruble Bets Increase as Currency Slides on Crude, Economy

  • Gazprom, Novatek lead Micex Index lower on tax concern
  • Hedge funds negative on ruble for 11 weeks, CFTC data show

The ruble weakened for the first time in three days as falling crude oil and concern about Russia’s contracting economy prompted hedge funds and other speculators to bet on currency declines for an 11th week.

While the ruble has recovered from a record-low close a month ago, it’s still the worst performer among emerging markets this quarter after Brazil’s real with a drop of 16 percent. Natural-gas producers Gazprom PJSC and OAO Novatek pulled the benchmark equities gauge lower on speculation the government will increase taxes on the industry as it seeks to plug the widest budget deficit since 2010.

Speculators were net short the ruble for the eleventh week, the longest bearish streak this year, U.S. Commodity Futures Trading Commission data showed on Sept. 25. They increased net ruble short positions to negative 2,543 futures in the week ended Sept. 22, the data, which are reported with a lag, show.

"Sentiment toward the ruble remains bearish due to the prospect of a prolonged recession caused by lower oil prices,” said Piotr Matys, a strategist at Rabobank in London, who said he sees the ruble falling 8.4 percent to 71.691 against the dollar in the coming weeks.

After 600 basis points of interest-rate cuts in 2015, the government kept benchmark borrowing costs on hold for the first time this year at its last meeting on Sept. 11 to avoid weakening the Russian currency. Five-year government bonds have fallen this quarter, lifting the yield 26 basis points to 11.44 percent.

Limited Room

“The central bank has limited room to cut interest rates further as inflation is likely to remain higher for longer than previously anticipated,” Matys said. Inflation quickened in August to 15.8 percent, exceeding an analyst estimate for 15.6 percent.

The ruble slid 0.1 percent to 65.5670 per dollar by 5:34 p.m. in Moscow. Oil, the nation’s key export earner, retreated 1.5 percent to $47.88 a barrel in London trading, extending its drop this month to 12 percent.

The benchmark Micex stock index lost 1.2 percent, erasing Friday’s rebound, as Gazprom and Novatek dropped. The companies, which have a combined 20 percent weighting in the Micex, extended declines after Economy Minister Alexei Ulyukayev said the government is discussing changes to the gas export duty to increase budget revenue.

Budget Hole

“Everyone is scared that the gas industry will be affected by a possible tax
increase meant to fill the budget hole," Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow, said by phone. Still, it’s unlikely the government will take such a step because “it’s such an important state company and Gazprom may in return ask for higher
domestic gas prices, which is something the government is unlikely to approve,” he said.

Lukoil PJSC, Russia’s second-biggest oil producer, erased declines of as much as 1.5 percent, to trade 0.4 percent higher. Instead of raising an extraction tax, Russia will weigh lowering oil-export duties at a slower rate than planned, Prime Minister Dmitry Medvedev’s spokeswoman said.

Uralkali PJSC rose for a second day, jumping 4.5 percent. The potash-mining company raised its buyback program 71 percent to $2.26 billion, the company said Friday.

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