Improved Liquidity Lifts Stocks, Ruble

The ruble and the country's benchmark RTS Index firmed to one-week highs Wednesday, cheered by an improvement in sentiment and banking sector liquidity.

A 20 percent sell-off on Moscow's bourses during the early part of last week prompted authorities to come up with a market rescue package worth around $130 billion, ranging from cuts in reserve requirements to a pledge to buy shares.

"The panic has stopped. Measures are being taken to solve the crisis of confidence in the banking system. ... The stability of the financial system reduces capital outflows, which helps the money market and also equities," said Vladimir Osakovsky, analyst at UniCredit.

The dollar-denominated RTS Index hit a one-week high of 1,334.75 points before closing at 1,315.43 points, up 3.4 percent on the day. The more liquid, ruble-denominated MICEX Index added 3.2 percent to 1,105.72 points, with trading suspended for around an hour because of technical reasons.

Overnight money market rates fell to as low as 2 percent -- their lowest in three months and more than five times lower than the peaks of around 11 percent seen during the height of the liquidity shortage last week.

The Central Bank canceled an auction of up to 300 billion rubles ($12 billion) of budget funds Wednesday because of a lack of demand from commercial banks, in a further sign that the banking liquidity situation is improving.

The money had been on offer for one week to the 28 banks that meet the Finance Ministry's creditworthiness criteria, but the Central Bank, which runs the auctions, said the placement had not happened due to insufficient demand.

The ruble closed at 30.25 against a basket of 55 cents and 45 euro cents, its strongest since Sept. 15, and recovered from the 30.40 to 30.41 level at which the Central Bank had stepped in to defend it in recent sessions.

Dealers said the ruble benefited from stock market rises as well as from Russian exporters exchanging foreign earnings into local currency in time for end-of-month tax payments.

The news, coupled with Warren Buffet's backing of Goldman Sachs, buoyed bank stocks, with Sberbank, the biggest holder of ruble deposits, rising 7 percent. VTB Group rose 0.33 kopeks, or 6.5 percent, to 5.36 kopeks after announcing that second-quarter profit more than doubled to $553 million from $256 million a year earlier.

Oil rose around 2 percent, and energy firms benefited, with Rosneft gaining 2 percent and Gazprom adding 5.4 percent. Both have been flagged as targets for when the government does start share purchases, although a mechanism for that is not yet in place.

Gazprom, the country's biggest corporate borrower, will pay down 230 billion rubles ($9.2 billion) in debt using its own funds by the end of the year, Kommersant reported, citing a source close to the board of directors. The debt repayment is "hugely positive news" for shareholders and bond investors, Troika Dialog analysts wrote in a note.

"The stress remains, the stability is a fragile one," said Osakovsky, of UniCredit. "People are asking me if it is danger-free to buy stocks. Of course it is not."

(Reuters, Bloomberg)