Russia: Fallout from US sanctions continues - BBH

Analysts at BBH note that the fallout from the US sanctions on Russia continues as after a 12.4% drop yesterday, MSCI Russia is down another 2.3% today and RUB has lost another 3% today on top of yesterday’s 4% loss, with USD/RUB trading at a high near 64. 

Key Quotes

“This is the highest since December 2016 and on track to test the November 2016 high near 66.87.  Just to illustrate how far the ruble rallied after the worst of the Ukraine-related sanctions, the 67 area represents the 38% retracement objective of the big 2016-2018 move.  The high in January 2016 was near 85.96, and so we see scope for significant ruble weakness ahead.”

“Default risk for the targeted corporates is rising.  This could have a huge potential impact on the sovereign, which faces contingent liabilities with regards to the state-owned entities.  Both the dollar and local currency bond yields are jumping.  The 10-year dollar bond yield is up 28 bp today to almost 5.0% after a similar rise yesterday.  The ruble bond yield is up 24 bp to 7.50%, after finishing last week near 7.05%.”

“Between the latest turn in investigation of Russia's attempt to influence the US election, and the new unrelated sanctions, and the US-China trade confrontation, most of the economic oxygen has been exhausted.”