Russia Devalues Ruble

123jump.com Staff
12 Jan, 2009
New York City

Russia, battling a sharp drop in crude oil prices, lack of foreign investors confidence and worsening capital flight devalued the currency 2% over the weekend. The ruble is likely to drop as much as 15% in the next six months if oil stays below $50 a barrel.

[R]8:30AM New York – Ruble was devalued 2% over the weekend but may plunge another 10% in the near term. Saudi Arabia cut its oil production target. Citigroup has agreed to sell Smith Barney to Morgan Stanley and may book capital gain of more than $7 billion.[/R]

Russia Devalues

Russia devalued its ruble for the second time in as many days to stem the capital flight. The ruble declined in two days 1.9% to 31.1916 and the central bank may have to devalue the currency in the coming months.

Russian companies have more than $75 billion of debt due in foreign currency and are scrambling to raise foreign exchange in the market. Since August, ruble has fallen 24% against the dollar and may drop another 15% if the crude oil remains below $50 a barrel.

The main export of Russia, crude oil declined further below $40 a barrel. Ruble now trades at six year low but is likely to trade at 34 to one dollar in the near term.

Foreign investors have withdrawn nearly $200 billion from the Russian markets as oil and metal prices have collapsed in the last eighteen months. Russia has been fighting the currency flight and drained $155 billion from its treasury with reserves of $1 trillion at its peak in 2007.

Separately, Russia also agreed to install gas trans-shipment monitors for natural gas supply through Ukraine. Ukraine has agreed to conditions for monitoring and repay the unpaid debt to Russia. However, the supply of gas has still not resumed.

Crude Oil Falls Below $39

Crude oil futures for immediate month delivery fell 6% to $38.30 after Saudi Arabia lowered its production targets and issued notices to refiners for lower supplies. The move comes after demand in America, Europe and Asia declined in the last six weeks and is expected to remain soft for the next six months.

However, speculators are still looking for a higher crude oil price for March and April delivery. Oil is trading at $5 a barrel premium for March delivery and for April delivery at $9 a barrel premium.

The whopping premium of 25% from the present month prices is driven by willingness of hedge funds to incur financial risk and speculate on the direction of oil prices. Hedge funds have withdrawn nearly $120 billion from crude oil markets but net long positions have risen 20% according to the latest report by the Commodity Futures Trading Commission.

Citi and Morgan Stanley to Merge Brokerage Operations

Citigroup is at an advanced stage of negotiating with Morgan Stanley and merge brokerage units of two companies, according to three people familiar with the discussions.

The newly merged brokerage operations will be called Morgan Stanley Smith Barney and will be controlled with at least 51% stake by Morgan Stanley.

The merged unit will have 22,000 licensed brokers and operations in 25 countries and may see another round of layoff of at least 3,000 people. Bank of America and Merrill Lynch after the merger will have 20,000 brokers and larger asset base.

Newly formed brokerage house is expected to be valued at $20 billion and Morgan Stanley is likely to pay between $2 billion and $3 billion to Citigroup. The troubled bank and financial service is reeling under losses and is seeking capital from asset sales as losses mount from the real estate linked securities.

Citigroup may book as much as $7 billion in capital gains that may help it in increasing its required capital for regulatory purposes.

Russia Devalues

Russia devalued its ruble for the second time in as many days to stem the capital flight. The ruble declined in two days 1.9% to 31.1916 and the central bank may have to devalue the currency in the coming months.

Russian companies have more than $75 billion of debt due in foreign currency and are scrambling to raise foreign exchange in the market. Since August, ruble has fallen 24% against the dollar and may drop another 15% if the crude oil remains below $50 a barrel.

The main export of Russia, crude oil declined further below $40 a barrel. Ruble now trades at six year low but is likely to trade at 34 to one dollar in the near term.

Foreign investors have withdrawn nearly $200 billion from the Russian markets as oil and metal prices have collapsed in the last eighteen months. Russia has been fighting the currency flight and drained $155 billion from its treasury with reserves of $1 trillion at its peak in 2007.

Separately, Russia also agreed to install gas trans-shipment monitors for natural gas supply through Ukraine. Ukraine has agreed to conditions for monitoring and repay the unpaid debt to Russia. However, the supply of gas has still not resumed.

Asian Markets Review

Hang Seng index in Hong Kong decreased 406.44 or 2.83% closed to 13,971.00 CSI 300 index in China higher 2.32 or 0.12% closed to 1,920.69. ASX 200 index in Australia decreased 52.40 or 1.40% to close 3,683.30. The KL Composite index in Malaysia higher 4.50 or 0.49% closed to 923.57. Markets of Japan were closed today.

The Kospi Index in South Korea decreased 24.21 or 2.05% to close at 1,156.75. SET index in Thailand closed lower 6.26 or 1.36% to 452.80 and JSE Index in Indonesia increased 10.12 or 0.71% closed to 1,406.55. The Sensex index in India decreased 296.42 or 3.15% closed to 9,110.05.

Europe Markets Review

In London FTSE 100 Index traded lower 20.37 or 0.46% to 4,428.17, in Paris CAC 40 Index decreased 6.89 or 0.21% to 3,292.61 and in Frankfurt DAX index traded lower 15.62 or 0.33% to 4,768.27. In Zurich trading SMI decreased 76.71 or 1.35% to 5,620.53.