Tag: eliteforexblog

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Ruble Rallies 34% After Biggest Russian Intervention In 5 Years

Elite Forex Blog - Market Research & Analysis
Since the Russian Ruble troughed at almost 80 RUB/USD, it has rallied an impressive 34% erasing most of the dramatic devaluation of December. However, as The CBR just announced, this ‘strength’ came at a price. Russia burned through $15.7 billion of reserves in the week ending Dec 19th – the biggest percentage weekly drop in reserves since Jan 2009, leaving reserves below $400 billion (still a significant amount) for the first time since Aug 2009. While CBR explained much of this will come back as repo trades mature, Vladimir Putin turned inward, blaming the government for “defects” in restructuring the economy.
The Ruble has soared in the last 2 weeks…
On the heels of the biggest intervention in almost 5 years…
  •  
  • *RUSSIAN INTERNATIONAL RESERVES FALL $15.7B IN WEEK TO DEC. 19
  • *RUSSIAN INTERNATIONAL RESERVES AT $398.9B
  • *BANK OF RUSSIA SAYS DROP IN RESERVES MOSTLY DUE TO FX REPO
  • *BANK OF RUSSIA: FUNDS USED IN FX REPO WILL RETURN TO RESERVES
  • *RUSSIA RESERVES ALSO FELL ON REVALUATION AS USD GAINED VS EURO
But, as Sputnik news reports, it’s not just external factors, Putin points his finger internally…
The difficulties in Russia’s economy are not only because of outside factors, including sanctions, but also because the government has not worked out some defects, Russian President Vladimir Putin said Thursday.
“The difficulties that we have run into carry not only an outside factor. They are not solely tied to some sorts of limitations of sanctions or limitations tied with the objective international environment, they are tied to our not working out defects that have accumulated over the years,” Putin said during a government meeting in Moscow.
Putin said the government has taken efforts in order to change the structure of the economy in order to give it a more innovative nature, but said the efforts were below the needed measures.
“Much has been done in this but the latest events have shown that this is insufficient,” Putin added.
Russia is currently facing an economic slowdown, with dramatic fluctuations seen recently in the value of the Russian ruble against the US dollar and the euro.
The weakening of the Russian national currency is attributed to low oil prices. The sale of oil accounts for a significant part of Russian budget revenues. Economic sanctions imposed on Moscow by the West in the wake of the Ukrainian crisis are also cited among the reasons for the economic slump.
During a December 18 televised press conference, the Russian president said that the country’s economic situation could begin to improve in the first quarter of 2015, with Russia’s economy recovering completely over the next few years.
*  *  *
Still it’s not like $400 billion is going to disappear tomorrow – for those proclaiming Russia’s imminent default. (CDS imply a mere 5% probability of default over the next year based on 25% recovery assumptions)
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Belarus In Full-Blown Hyperinflation Panic: Blocks News, Online Stores; Bans All FX Trading For 2 Years

Elite Forex Blog - Market Research & Analysis

“We have to do something with these Belarussian rubles,” exclaims one Belarussian as she shops to turn worthless rubles (BYR) into physical assets. As AFP reports, The Belarussian currency was dragged down by the slide of the Russian rub…

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Swiss National Bank will cut interest rate to minus 0.25%

Elite Forex Blog - Market Research & Analysis
Switzerland’s National Bank (SNB) will bring in a negative interest rate cutting the value of large sums of money left on deposit in the country.
The Bank is imposing a rate of minus 0.25% on “sight deposits” – a form of instant access account – of more than 10m Swiss francs ($9.77m).
It is trying to lower the value of the Swiss franc, which has risen recently.
Russia’s market meltdown and a dramatic plunge in the oil price have led investors to seek “safe havens”.
The announcement sent the franc lower, and in early trading the euro was buying 1.2095 Swiss francs, fewer than the 1.203 it was worth before the news, just within the target.
Switzerland typically sees money flow in during economic uncertainty.
The new rate will be introduced on 22 January and will only affect banks and large companies who use the “sight account” to transfer funds quickly and without restrictions.
A negative rate means depositors pay to lend the bank their money.
Geoffrey Yu, a currency strategist at UBS, said: “In the short term it gives them some breathing space.

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Euro v Swiss Franc

LAST UPDATED AT 19 DEC 2014, 18:56 ET*CHART SHOWS LOCAL TIMEEUR:CHF intraday chart

€1 buys change %
1.2037
0.00
+0.01
“If you hold Swiss francs right now you do have to bear a cost. New buyers will be forced to think twice.”

Reasons

SNB said in a statement: “Over the past few days a number of factors have prompted increased demand for safe investments.
“The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”
The central bank has a cap of one euro equals 1.20 Swiss francs, above which it tries to prevent the franc rising.
Too high a rate has the effect of making Swiss export products more pricey.
Switzerland is also chary of attracting yet more money into its banking-heavy small country.
The European Central Bank (ECB) also introduced negative interest rates, albeit for very different reasons.
The ECB wants to keep money out of its banks, not because it wants to reduce the value of the euro but because it wants money flowing round the eurozone countries to boost investment and spending.
Germany’s Commerzbank also recently introduced negative interest rates for bigger corporate clients, but it said that was linked to the ECB’s negative rates policy.
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Ruble plummets losing more than 20% in a day, hitting new dollar and euro lows

Elite Forex Blog - Market Research & Analysis
No end seems to be in sight for the plight of the Russian ruble, which slumped to new record lows against hard currencies Tuesday. The EUR traded at 93.5 against the ruble, and the USD at 75.
The Russian stock market also went haywire, dropping more than 15 percent as of 2:30pm Moscow time, after it dropped 11 percent the day before. Sberbank, the country’s largest lender, lost 17.77 percent, and VTB, the second biggest bank, fell by 14.29 percent. State-owned oil and gas companies Gazprom, Rosneft, and Surgut also saw shares plummet. 
The emergency interest rate hike to 17 percent has failed to halt the ruble’s landslide tumble against hard currencies. The rate increase only calmed the ruble temporarily.
It has accelerated its descent in November and December along with falling oil prices. Investors have been pulling capital out of Russia over geopolitics since earlier this year, and sanctions levied by the US and EU have essentially cut Russia off from Western lending.
Most analysts agree that Russia will enter recession in the first quarter of 2015, including the Economy Minister Aleksey Ulyukaev, and the Central Bank.
Ruble on the run, losing more than 20% against the USD Tuesday, hitting 73.82. Source: Forexlive.com

Ruble on the run, losing more than 20% against the USD Tuesday, hitting 73.82. Source: Forexlive.com

On Tuesday, the CBR chief Elvira Nabiullina said a higher rate should put an end to investor speculation that has been hitting the ruble.
“We must learn to live in a new reality, to focus more on our own resources to finance projects and give import substitution a chance,” the bank chief said in a televised address Tuesday.
Source: RBK quotes

Source: RBK quotes

However, neither the rate increase nor the comments have had a big impact on ruble trading as it continued to slide. Russia’s currency has lost more than 55 percent against the dollar this year, mostly to external factors such as slumping oil and sanctions against Russia.
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This is a MAJOR Warning Signal That the Bubble Just Burst

Elite Forex Blog - Market Research & Analysis
Throughout the last 5 years, the financial markets have moved with high yield bonds (also called Junk Bonds) leading stocks. This makes sense: as the financial system began recovering from the 2008 Crash, money began flowing back into riskier and riskier assets.
You can see this below, with High Yield Bonds outperforming stocks, leading them higher from 2009-2014. With interest rates at 0%, investors were hungry for yield. Stocks only offered 2-3%, so this lead investors into Junk Bonds which typically yield 7% or even more.
Then something happened. Junk Bonds began to collapse… in a BIG WAY.
Indeed, Junk Bonds have been flashing a MAJOR warning signal that something BAD is coming. But stocks have ignored it for all of 2014.
Indeed, if you look at what happened during the October 2014 correction, you see that High Yield Bonds did NOT buy into the bounce AT ALL!
This is a MAJOR warning signal that the great “recovery” in risk assets was ending. The Fed spent over $4 trillion and managed to create another stock market bubble, but that bubble is ending.
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