January 28, 2020 / 1:01 PM / a month ago

UPDATE 2-Russian rouble regains ground in volatile trade as virus fears linger

(Updates prices after rouble reversal, adds Sberbank CIB comment)

MOSCOW, Jan 28 (Reuters) - The rouble clawed back some lost ground against the dollar on Tuesday in volatile trading as concerns about the coronavirus outbreak in China kept investors risk-averse.

By 1256 GMT the rouble was up 0.6% at 62.60 against the dollar, having hit its weakest since Dec. 12 in early trade at 63.14 after posting its biggest daily fall since August on Monday.

“The coronavirus outbreak in China remains the main factor casting pressure on markets. But the most substantial reaction already materialised on Monday,” Otkritie Brokerage said.

Sberbank CIB, an investment arm of Russia’s number one lender Sberbank, said markets will stabilise only when the spread of the virus is brought under control or a vaccine is found, which looks unlikely over the next couple of days.

“Thus, we think risk-off sentiment could pick up in the evening, pushing the rouble weaker to 63.2.”

For now, the local market is favouring long dollar positions, “expecting some Armageddon with this virus”, said an FX dealer at a major Russian bank in Moscow.

“There is a risk that China may open lower with a big gap after the holidays, which will blast emerging markets again,” he said, referring to the re-opening of the Chinese markets after this week’s Lunar New Year break.

Once concerns about the virus ebb, the rouble is likely to regain ground, supported by still-high oil prices and yields offered by rouble-denominated bonds, analysts say.

In the past five to ten years, the rouble has usually weakened slightly in January and posted gains between February and April, said Dmitry Polevoy, chief economist at the Russian Direct Investment Fund.

Versus the euro, the rouble was up 0.7% to 68.90 , but still well off a 2020 peak of 67.65 hit some three weeks ago.

Russian stock indexes were up after a steep slide on Monday, responding to oil prices paring losses.

Brent crude futures, a global benchmark for Russia’s main export, were up 0.3% at $59.5 a barrel, having touched a three-month low earlier in the day.

The dollar-denominated RTS index was up 1.6% to 1,566.3 points. The rouble-based MOEX Russian index was up 0.9% at 3,112.0 points after earlier falling to 3,068.7, its lowest since Jan. 6.

For Russian equities guide see

For Russian treasury bonds see (Reporting by Andrey Ostroukh; additional reporting by Vladimir Abramov and Alexander Marrow; Editing by Catherine Evans, John Stonestreet and Jan Harvey)

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