All eyes continue on the currency as Russian equities ex-currency are flat. Clearly however, if you are a USD investor and own Ruble based assets in USD you care about the currency and if you think the Ruble is going to 60, hands off buying Lukoil (LUKOY, quote) in ADR form.
But investing in Russia (RSX, quote) is all about oil right now as current oil prices cost Russia $100Bn/year vs sanctions which are estimated to have a $40Bn impact. Right now Russian GDP looks to contract somewhere from 5-8% next year based on current conditions.
This morning the Ruble hit 55/USD before CBR stepped in again with an estimated $700-800m. This gave the currency some life back to a 52 handle before giving some ground. Brent has rallied in US hours also supporting the currency which is all about oil and not sanctions at this point.
As I talk to market makers this morning the sense I get is that speculators feel they have the Russian Central Bank on the ropes and have been emboldened by the need for the CBR to intervene in the currency markets. The sense is that interventions will need to be more like 5-10Bn to blow these guys out of the water (the speculators) and put a floor under the current round of Ruble stress.
We are watching closely tomorrow’s speech by Putin in front of Parliament ( and all interior comments from his staff and Putin before tomorrow) to gauge what type of action, if any, is being formulated. The thought is a major policy response to the “new” conditions is justified but Kremlin has not had a chance to address the OPEC (lack of) move in order to use this event as a big moment. We could be surprised however and the market is vulnerable to a squeeze higher on anything that could indicate a legitimate policy response.