Azernews.Az

By Bloomberg

The ruble weakened for the first time in three days amid concern peace talks on Ukraine, set to get underway on Wednesday, will founder and lead to new sanctions against President Vladimir Putin.

The ruble declined 1.2 percent to 66.21 per dollar as of 2:10 p.m. in Moscow. A report late Tuesday by the Itar-Tass agency that a cease-fire agreement was reached ahead of today’s meeting in Minsk, Belarus, sent the ruble strengthening more than 2 percent. Two officials representing members of the so- called contact group said no agreement was reached.

Investors are reacting to the threat that Russia will be further isolated from international capital markets after the European Union said on Tuesday it planned to impose more sanctions on the country should peace efforts collapse. Putin is set to hold talks with the leaders of Ukraine, Germany and France later on Wednesday as officials wrangle over the degree of autonomy to give rebel-held regions of Ukraine after 10 months of fighting.

“Making forecasts is like flipping a coin,” Selim Agarzaev, a foreign-currency trader at Metallinvestbank in Moscow, said in e-mailed comments. “Too much depends now on the single event -- the results of the Minsk talks.”

Government bonds climbed as investors sought four times the amount of debt offered at an auction of May 2019 notes today. The Finance Ministry placed 4.9 billion rubles ($74 million) of the securities at an average yield of 13.76 percent, after offering 5 billion rubles, according to a statement on the ministry’s website. The yield on five-year government notes dropped one basis point to 13.82 percent after a 28 basis point increase yesterday.

Minsk Trigger

“It’s been a while since they offered something in the 4-5 years maturity,” BCS Financial Group analyst Yulia Safarbakova said in e-mailed comments. “On top of that some people could be buying bonds betting on positive results from the Minsk talks.”

The Finance Ministry will also seek to sell 15 billion rubles of floating-rate bonds due in December 2017 later today. The offerings are the biggest since April 23.

U.S. President Barack Obama said the U.S. would consider sending lethal military aid to Ukraine’s government if the negotiations fail to bring a resolution.

“A positive outcome would cut risks of further escalation of sanctions and thus help to reduce the high political market discount,” Bank of America Corp. analysts, led by Vladimir Osakovskiy, said in an e-mailed note. “Failure to reach any agreement in Minsk would lead to further escalation of the crisis, which could potentially lead to further tightening of sanctions pressure and deterioration of the investor sentiments.”

Crude Drops

Crude oil, which along with natural gas brings half of Russia’s federal budget revenue, fell 1.2 percent in London to $55.76 a barrel.

Micex Index of stocks gained 2.3 percent to reach 1,782.49, heading for the highest close since April 2011. Out of 50 shares, 42 on the Micex traded above the 50-day moving average on Tuesday, the highest number since July 11, according to data compiled by Bloomberg.

“The last two days show that medium-term players and portfolio managers don’t want to close their long positions,” Nikolay Zolotarev, head of investment department at MDM Bank in Moscow, said in e-mailed comments.

While the ruble is the best-performing emerging markets currency in the last five days with a 2.6 percent gain against the dollar, it’s still down 8.2 percent for the year. If the market hears good news from Minsk, the ruble may strengthen 7.7 percent to 61.50 against the dollar, Zolotarev said.

“If the news is negative, it’s hard to say where the dollar may strengthen to -- the question is how negatively do market participants take the news,” he said.