Russian stops FX purchases as Ukraine fears hammer rouble, stocks, bonds

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  • Russian assets hammered by geopolitical concerns
  • Rouble hits 79.5 vs dollar, over 2.6% drop
  • Kremlin blames volatility on Western 'hysteria'
  • MOEX stock index sinks around 6% at multi-month low

MOSCOW, Jan 24 (Reuters) - The rouble dived to its weakest against the dollar in more than 14 months and Russian stocks plumbed new lows on Monday as concerns about soaring tensions between Moscow and the West over Ukraine stoked a broad sell-off of Russian assets.

The central bank announcement it would stop buying foreign exchange on the domestic market from Monday under its fiscal rule offered the rouble a brief respite before the losses resumed.

Volatility has plagued Russian markets in recent weeks amid Western fears Russia is poised to invade its neighbour, something Moscow has repeatedly denied. If Russia does make an incursion, the West has threatened sanctions with profound economic effects. read more

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NATO said it was putting forces on standby and reinforcing eastern Europe with more ships and fighter jets, in what Russia denounced as an escalation of tensions. read more

By 1512 GMT the rouble was 2.6% weaker against the dollar at 79.47 , having earlier sunk to 79.50, its weakest since early November 2020. Against the euro, it lost 2.1% to 89.74 , its weakest since July 20.

U.S. investment bank JPMorgan closed all its remaining long positions in the rouble at a loss, citing prohibitively high geopolitical uncertainty.

"We cannot with high confidence dismiss negative scenarios. Hence, our existing long recommendations have become untenable," the bank's analysts said in a research note.

War worries for Russia's rouble

Stocks were tumbling, hitting their lowest since late 2020. Russia's dollar-denominated RTS index (.IRTS) was down 8.9% at 1,276.8 points. The rouble-based MOEX Russian index (.IMOEX) was 6.4% down at 3,218.6 points. Shares in gas giant Gazprom and state lender VTB (VTBR.MM) were down almost 7%.

"For the local market, expect risk-off to continue, with tensions smouldering and little opportunity to save face on either side," BCS Global Markets said in a note.

"Future events are up for debate, uncertainty will rule for now."

Russia's 10-year OFZ bond yields hit 9.76%, their highest since early 2016. Yields move inversely to prices.

Kremlin spokesperson Dmitry Peskov blamed the market rout on Western hysteria and said markets were suffering globally.

"Such periods of decline are always followed by periods of growth," Peskov told reporters. "The sooner our opponents stop their hysterical actions, the quicker this pessimistic mood will disappear."


Denmark said the European Union was ready to impose "never-seen-before" economic sanctions if Russia attacked Ukraine, while Ireland said Moscow had notified it of Russian naval exercises in international waters in the Irish Sea, adding that they were unwelcome.

"It looks like both sides are dialling up the pressure," said abrdn EM portfolio manager Viktor Szabo.

The tensions drove Russian 5-year credit default swaps to their highest since March 2020 at 234 basis points , and the rouble's volatility gauge to its highest since November 2020 .

Russian and Ukrainian dollar-denominated sovereign bonds extended falls and Russian ETFs were hammered.

Russia's central bank said it would stop forex purchases on Monday, in an attempt to ease market volatility. [nS8N2SV0A1]

Under a fiscal rule adopted in 2017 to strengthen the National Wealth Fund, Russia buys foreign currency when oil prices are high and sells when prices go below $44 per barrel, shielding the rouble from oil price swings.

Russian officials say the country's finances are healthy and economic fundamentals are strong. read more

Russia is also grappling with rising COVID-19 cases, which hit a record high of 65,109 on Monday, with the Omicron variant spreading across the country. read more

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Reporting by Alexander Marrow and Katya Golubkova Additional reporting by Elena Fabrichnaya and Dmitry Antonov in Moscow and Marc Jones in London; Editing by David Goodman, Toby Chopra and Tomasz Janowski

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