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. Last Updated: 07/27/2016

Markets Up as Bank Quells Ruble Rumor




Russian financial markets finished the week on a positive note after the Central Bank move to quell rumors about a ruble devaluation by raising key refinancing rates.


The Moscow Times Index of 50 leading shares finished at 209.59, up 5.63 percent for Friday, but stocks still ended down 4.60 percent for the week.


The boost in prices came after the Central Bank announced an increase in the refinancing rate, starting Monday, from 28 percent to 42 percent. The Russian Trading System had volumes of $87 million, compared to $46 million Thursday. Oil giant LUKoil closed at $15.94 Friday, down 2.5 percent for the week. Unified Energy Systems surged 6 percent to $0.2160 on Friday, but still closed down 8.5 percent for the week.


But gains among equities failed to translate into gains on government paper, with treasury bills losing 2 percent Friday, pushing yields to 46 percent. Dealers, however, expect yields to return to around 40 percent within the next week or two, as it appears investors are lining up to buy aggressively when the markets reopen Monday


"Our London clients expressed their willingness to take part in Monday's trading and are selling a lot of dollars," said Maxim Safonov, T-bill dealer at ING Bank, referring to the investors' hunger for rubles ahead of bidding on bond markets.


The stock market opened 5 percent higher Friday after some investors decided stocks had hit bottom the day before, then sharply fell after the Central Bank announced the new refinancing rate. Traders describedthe move as a classic reaction, as higher refinancing rates theoretically make T-bills more attractive than shares.


"By the rules, an increase of rates leads to a fall in equities," said Dmitry Konov, a trader at MFK-Renaissance. "However, in our situation it was more positive. ... Investors saw that the [Central Bank] is trying to protect the ruble."


"The ruble obviously strengthened today," said Samit Yakovlev, head of equities at United City Bank.


Later Friday, Western investors took the Central Bank's action as a sign that it was aggressively seeking to stem market rumors of a ruble devaluation and give strong support to the market, pushing prices up later in the day.


"I saw some big purchases from the West," said Andrei Kukk, head of trading at Rinaco Plus. "They were not speculators. [They] believed the current prices are good to buy for long-term."


But traders were far from predicting an upward trend, maintaining that there could be some investors who will be tempted to sell and take quick profits.