Russia's Ruble Catches a Break as Crude Surge Offsets Syria Woes

(Bloomberg) -- The ruble bounced back from the lowest level since 2016 and bonds climbed as rising oil prices outweighed U.S. and Russian brinkmanship in Syria.

The currency was the sole gainer among major emerging markets on Thursday as traders reasoned that the slump caused by geopolitical uncertainty had gone too far. The flipside of the escalation in Syria is also that it has pushed up the price of crude, Russia’s main export earner.

“Potentially we could be past the worst here,” Mark Nash, head of fixed income at Old Mutual Global Investors, says in interview on Bloomberg TV. “It’s an oil-linked economy. If we have calm now from the sanctions and the worst has passed, investors will look to these yields and buy back from the Russian bond market.”

Russia's Ruble Catches a Break as Crude Surge Offsets Syria Woes

The ruble sank to a 16-month low in intraday trading on Wednesday after U.S. President Donald Trump warned Russia on Twitter to get ready for missile strikes in Syria. It ended the day in the green on Brent’s gains and a comment by Treasury Secretary Steven Mnuchin that he remains opposed to the so-called nuclear option of sanctioning Russia’s sovereign debt.

Despite the rhetoric, the U.S. president hasn’t decided how to retaliate against Assad, White House spokeswoman Sarah Huckabee Sanders told reporters Wednesday, adding that Trump has been in talks with a number of key allies in recent days. The Syria tensions come on top of the U.S.’s harshest sanctions yet, which drove one of the country’s largest employers out of the dollar economy and Russian aluminum out of key exchanges.

Russia's Ruble Catches a Break as Crude Surge Offsets Syria Woes

The penalties the Trump administration imposed Friday hit billionaire Oleg Deripaska’s metals giant United Co. Rusal the hardest. They left investors guessing who or what may be targeted next and Russia girding for what Prime Minister Dmitry Medvedev called “economic war” even before Trump’s threat.

Compliance Scrambles

“Our compliance people were scrambling a bit to see what the impact of these sanctions would be,” Hans Humes, the chief executive officer of emerging-markets hedge fund Greylock Capital Management, said in interview with Bloomberg TV. The penalties are “disconcerting” because they’re more far-reaching than sanctions that have been put in place before, he said.

The ruble jumped 1.4 percent to 61.72 per dollar as of 1:43 p.m. in Moscow, fueling volatility. Ten-year local bonds rallied for a second day, lowering the yield 14 basis points to 7.39 percent. The biggest Russian equity-focused exchange-traded fund, which is dominated by Russian oil and gas majors, had an inflow of $58.6 million on Wednesday, the most since Jan. 5, as Brent spiked amid escalating geopolitical risks in the Middle East.

The ruble selloff went too far, although the currency is unlikely to strengthen substantially beyond 60 against the dollar in the near term, Credit Suisse Group AG analyst Nimrod Mevorach wrote in a note dated April 11.

“The sanctions and geopolitical risk premium attached to the ruble will likely remain higher than it was before the recent market turmoil and potentially for some time,” Mevorach said.

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