Bad week for the ruble and Kremlin

27 December 2022, 05:25 PM

Over the past seven days, the Russian ruble went from 64 rubles per dollar to 72, and then climbed back to 69 rubles per dollar. 

Traders were already somewhere in the Bahamas in spirit (and perhaps in body), and have already finished their corporate holiday parties, so the last thing they want to think about is work. Moreover, the markets have not moved on from the messaging from the U.S. Federal Reserve, which had spoiled the mood before the holidays, and the year has already been such a doozy for Wall Street traders (they don’t have anything on Kyiv traders, however). Especially for technology stocks — a bubble which has been deflated all 12 months. December was the icing on the cake. Tech stocks in December had the worst performance in 20 years since the dot-com bubble burst. The Nasdaq lost 8.9% this month. Ahead of the rest, as always, was Elon Musk and Tesla. When the bubble was inflating, Tesla flew higher and faster than anyone else, just as it is now deflating (but not yet bursting) at a faster pace. In December alone, Tesla's capitalization fell by 30%, and since the beginning of the year it has lost up to 70% of its value.

Video of day

There was an extra small glimmer of hope among Tesla owners this week as shares surged amid a poll orchestrated by Musk on Twitter to justify his departure from the company — not as owner, but as CEO. This exit appears to have been demanded by creditors who are rushing to Twitter amid a sharp drop in revenue after advertisers fled due certain wild activities by the genius of our time. But this growth quickly ended. The U.S. stock market also declined overall, although not as dramatically as the technology segment. The S&P 500 lost 70 points and will open on Friday at 3822 points, ending the year with a bear market that many market traders and speculators have never seen before.

This year, many things have happened that have not been seen in the markets for a long time and are remembered only by the luminaries. News from Japan added to the bear market and troubles in the technology sector.

In Japan, inflation was at the highest level since 1981, and by the end of November, the annual rate reached 3.7%. It's no joke  for decades the Japanese economic authorities have been trying to solve the problem of how they can start inflation, And nothing helped. And then it just happened. And now there are no people left in the Japanese Central Bank and among the management of corporations who clearly remember what and how to do when prices rise in their country. Of course, in Japan they live for a long time, and only a few drug addicts do not live 41 years old, but not everyone could keep the memory of those distant times. Even for World Cup champions Argentina, whose leader Messi had not been born yet when his legendary predecessor Maradona made Argentina the champion the last time, this inflation is not an exception, but a rule. This is the year 2022 for the world.

What else fascinated me this week was the movement of the ruble. After Central Bank Governor Elvira Nabiullina and companies managed by hook or by crook to stabilize the Russian currency in March, the ruble was laying on its side at 60 to the dollar and seemed to relax, remembering the sweet times of 60 kopecks to the dollar. But since November, something has changed, and in December, the warmth suddenly went away. And over the past week, the Russian ruble has gone from 64 rubles to the dollar to 72, and then climbed back to 69. Thus, in a month and a half, the currency swung 20%.

And this week, the ruble fell into the abyss, like an unlucky winter fisherman who fell into his own hole on the river. Perhaps the reason was the fact that since the beginning of November, the Russian Central Bank has had to print a lot of rubles — $32 billion worth? Or maybe this is how the oil sanctions are working, which, together with the drop in the cost of oil, have sharply limited the flow of foreign currency to Russia. It is still too early to talk about the effect of the embargo, the almost two-fold drop in oil supplies from Russia in the first week of the introduction of restrictions may be temporary and simply the result of the uncertainty effect that arose immediately after the sanctions entered into force. One way or another, something is happening, and the Kremlin could be nervous this week, and not just from looking at some photos from the Oval Office and the Capitol.

And then there's the price of natural gas falling at the end of December, when all the shamans of the market had clearly promised that it would peak in winter. Meanwhile, the price has dropped below $1,000, and for tomorrow's buyers it already costs $880. Yes, this is a lot if you look at the horizon of the last 10 years, but it is already lower than at this very time a year ago.

This cannot but please Naftogaz and the Ukrainian Ministry of Finance.

By the way, Naftogaz seems to be the only quasi-sovereign company from Ukraine that tried but failed to restructure its debt, and ended up in default. This week, Ukrzaliznytsia closed negotiations with creditors, demonstrating that in a year when everything goes wrong, Ukrainian trains do everything on time. And what Naftogaz should do with this inheritance in the form of a default is not yet clear, but the company can now also use the experience of its colleagues at the railroad. Nothing else happened on the Eurobond market because of Christmas. Everything is calm in the domestic market. The hryvnia slightly decreased this week, perhaps remembering its own annual traditions, even if any seasonality this year is very conditional. As a result, at the end of the week the cash dollar is traded somewhere around the mark of 40.2-40.3 hryvnia. And the hryvnia received a new helping of optimism after the legislators in Washington voted for a budget which, among other things, provides goodies for Ukraine.

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