Ruble Declines on Oil as Sberbank Sees `Sharply' Lower Currency

  • Morgan Stanley cuts OFZ recommendation to max underweight
  • Five-year bond yields rise most since August to 10.36%

Russian bonds fell and the ruble extended its worst start to a year since 2009 as Sberbank CIB said further depreciation would be justified by the slumping price of crude.

The currency declined 1.5 percent to 75.915 against the dollar by 6:56 p.m. in Moscow, the weakest on record based on closing prices. The yield on five-year government notes rose 43 basis points to 10.36 percent, the biggest one-day increase since August. Trading in Russia was closed last Thursday and Friday for public holidays.

Chinese producer prices fell for a record 46 months, fueling concern of further weakness in the world’s biggest energy consumer. Russia receives about half of its budget revenue from oil and natural gas sales. While the ruble is the second-worst performing emerging currency over the past six months with a drop of 26 percent, it hasn’t kept up with a 44 percent decline in the price of Brent, spurring concern the country won’t be able to contain its budget deficit.

“The story is unchanged with oil prices seeking a base level and the ruble following,” said Tom Levinson, senior foreign-currency and rates analyst at Sberbank in Moscow. “If anything the relative resilience of the ruble to lower Brent prices argues for the ruble against the dollar to be sharply beyond 75."

Brent in rubles dropped 1.6 percent to 2,469.38, the lowest since 2010 as the benchmark used to price the nation’s main export blend retreated 3.2 percent to $32.47 a barrel, an 11-year low.

‘Max Underweight’

Morgan Stanley analysts cut their recommendation for the ruble to market weight from overweight, citing the price of oil, and said they’re concerned about the "expensiveness" of Russian government OFZ bonds and lowered their recommendation to max underweight from market weight, the most pessimistic ranking.

Societe Generale SA closed its long August 2023 OFZ trade recommendation on Monday, citing a "significant" deterioration in investor sentiment and external conditions which are negative for ruble assets, analysts including Alexander Sychev said in an e-mailed note. SocGen analysts also cited increased likelihood of the Bank of Russia postponing monetary easing as a factor.

“Rapidly escalating concerns about China continue to exert downside pressure on commodities and keep the short-term upside bias intact in the dollar-ruble pair,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London. “At current levels we may hear verbal intervention from the central bank officials followed by direct foreign currency intervention" if the trend continues, he said.

‘Attractive Case’

Nomura International Plc’s Dmitri Petrov said the ruble may be oversold and is a very “attractive case.” The ruble’s 14-day relative-strength index dropped to 24.6 on Monday, the weakest since Aug. 24. That’s below the threshold of 30 that signals to some technical analysts that a security is poised for a turnaround.

Petrov, whose team’s predictions were the best among 34 forecasters ranked by Bloomberg on a four-quarter rolling basis, expects a recovery that could make the exchange rate as strong as 67 against the dollar over the next three months and bring it to 65 by year-end. That compares with a consensus that puts the ruble at 69 for most of 2016.

The Micex Index of shares retreated 3.8 percent after rising 26 percent last year. Magnit PJSC fell 5.8 percent. Russia’s biggest food retailer reported December sales growth of 16.7 percent compared with the same period a year earlier, while 2015 revenue increased 24.3 percent. Revenue growth was below the latest management forecast and analyst estimates by VTB Capital and Citigroup Inc.

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