Russia Resumes Debt Sales as Receding Sanctions Woe Lifts Stocks

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(Bloomberg) -- Russian stocks rallied the most in a week and the government resumed its regular bond auctions as the threat of a fresh round of U.S. sanctions appeared to recede.

The MOEX Russia Index advanced 1.8 percent, led by shares of lender Sberbank PJSC and mining company Norilsk Nickel, after a report that U.S. President Donald Trump won’t rush to impose new penalties. Ten-year government bonds rose, lowering the yield seven basis points to 7.43 percent. At the same time, the ruble weakened with oil prices and Morgan Stanley warned of “headwinds” for the currency.

Russian markets are staging a tentative recovery from last week’s slump, when the harshest U.S. sanctions to date and tensions in the run-up to Western strikes on Syria sparked the steepest drop for the ruble since June 2015. A Washington Post report on Monday said Trump had halted a plan for fresh sanctions following the attacks, and was unlikely to approve additional ones without a new triggering event.

“If President Trump intends to push back against imposing more sanctions on Russia, tension should ease,” said Piotr Matys, an emerging-markets currency strategist at Rabobank in London. “We are getting lots of confusing messages from Trump and his administration that will remain a source of volatility for the ruble.”

The ruble erased a gain of as much as 1.9 percent to trade 0.7 percent weaker versus the dollar as of 5:01 p.m. in Moscow as Brent crude declined for a second day. The currency’s one-month volatility has surged to the highest in more than a year.

The ruble faces headwinds from the current account and the Finance Ministry’s foreign-currency purchases, Morgan Stanley analysts said in a note. As a result, it “makes sense” for investors to continue selling the ruble and reducing their overweight stance to marketweight.

BlackRock Caution

The latest round of penalties on April 6 targeted Russian oligarchs and their public companies, effectively cutting one of the nation’s biggest employers, United Co. Rusal, out of the dollar economy.

BlackRock money manager Gerardo Rodriguez said Russia’s fundamentals look attractive, but he’s cautious due to the difficulty in predicting which individuals or companies may get hit next. BlackRock is the biggest holder of Russian ruble debt, according to public filings data compiled by Bloomberg.

“It’s not clear what the strategy of the U.S. is when it comes to their relationship with Russia,” Rodriguez said from New York.

Temporary Calm

The Finance Ministry will resume its weekly bond sales, offering 20 billion rubles ($325 million) of OFZs on Wednesday after it axed a sale for the first time since 2015 last week. The ministry opted for shorter-maturity bonds due in December 2021 and notes with a floating coupon due November 2022.

Citigroup Inc. recommended closing the short position it opened in Russia 2042 Eurobond on April 9 after the debt rebounded. At the same time, Citi warned the possibility of European sanctions and a May 7 deadline for compliance with the latest U.S. penalties could damp sentiment in the medium term.

“The fact the U.S. administration stopped short of adding to the new batch of sanctions yesterday suggests we might have reached a short-term pause in the ‘sanctions effort’, until further material developments in Syria occur,” Luis Costa, a strategist at Citigroup Global Markets Ltd., wrote in the note.

©2018 Bloomberg L.P.

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