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RUB: finding no foothold


Yesterday, pressure on the Russian FX market resumed, as the oil market posted unsuccessful attempts to recover and there was no positive news on the geopolitical front. In the morning, Brent was trading near USD 55/bbl, so already at the opening, USDRUB touched the 57.20 level to gain a stronger footing later on the day. In the afternoon, the oil market gained firmer ground, finding itself in the black for a while, but the momentum stalled and Brent closed at USD 56.3/bbl, having declined 0.3% over the session. Consequently, RUB weakened 1.3% against USD, edging down to 57.47.

The Chinese equity crash and Grexit concerns continued to weigh on the EM space, pushing the EM FX index down 0.3%. The 32% decline in the Shanghai Composite index since the high on 12 June risks creating a hard landing for the Chinese economy. This could darken the outlook for the global economy and maintain downward pressure on commodity prices. Hence, Asian currencies were trading 0.2% in the red, with KRW slipping 0.6%. BRL and MXN were under heavy pressure, losing 1.5% and 1.0%, respectively. At the same time, commodity-based currencies traded mixed, with NZD bouncing 1.2% and NOK declining 0.8%.

Brent traded to a low of USD 55/bbl yesterday, down 21% from its early May highs (so technically in a bear market again) and also under pressure from fund short selling, albeit with a significantly smaller Chinese component. While we have focused on the negative impact of rising US and OPEC production on prices, and the likelihood of a sustained global market surplus until 2H16, there is a further risk of Chinese demand being negatively impacted by recent events. China’s crude imports were down 10.9% YoY in May, after surging higher in 1Q15 (we think partly due to buying for strategic reserves), so that 5mo15 imports were still up 4% YoY. With Saudi Arabia, the UAE, Iraq and Iran all focused on increasing shipments to China, this could accentuate the global surplus even further with crude stocks likely to continue to rise to successive record highs, keeping prices capped with ongoing downside pressure.

Maxim Korovin, Tatiana Zueva
VTB Capital analysts

ruble, FX market

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