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- Time and expectations: how negotiations in the UAE affect the ruble and the Moscow Exchange index
Time and expectations: how negotiations in the UAE affect the ruble and the Moscow Exchange index
The most likely scenario for the development of the situation after the meeting of the Russian Federation, the United States and Ukraine in the Emirates suggests that in the next few weeks the Moscow Exchange index will fluctuate in the range of 2400-2550 points, and the dollar exchange rate will range from 80-85 rubles, experts interviewed by Izvestia believe. Expectations from the negotiations have already begun to affect the market: the day before, stocks rose in price amid news about the Russian delegation's trip to the UAE, and after the discussions began, they went down. On November 10, the national currency weakened to 82.81 rubles/$. It is under pressure from lower oil prices. But in case of a positive outcome of the meeting, the trend will reverse, experts are sure. The three possible scenarios for the development of events are described in the Izvestia article.
How did the market react to the negotiations in the UAE
On November 10, trilateral talks between Moscow, Washington and Kiev began in Abu Dhabi. Foreign Minister Sergei Lavrov said that at the suggestion of the United States and with the consent of Russia, the parameters of regional security will be discussed after the end of the Ukrainian conflict.
The Moscow Exchange index and the ruble exchange rate have already reacted to the situation. On the eve of November 9, on the news that representatives of our country flew to the UAE, stock market quotes rose by 0.6% to 2,478 points.
But already on the day of the negotiations, the situation changed. The morning session began with a 0.42% drop in the Moscow Exchange index to 2,462 points. By 17:00 Moscow time, it had dropped to 2,454 points. This market reaction may be due to the fact that the European side was absent from the meeting, the financial adviser and founder of Rodin admitted.Capital Alexey Rodin. However, the format initially assumed the participation of only three parties.
In addition, market players maintain rather restrained expectations, noted Alexander Bakhtin, investment strategist at Garda Capital. This is the first meeting in the framework of the resumed negotiation process, and so far at the working level. The parties coordinate positions and look for possible compromises, rather than making fundamental decisions. The very fact of the resumption of negotiations is a positive signal, but the market has already won back when it became known about the preparations for the meeting.
The ruble has also reacted unevenly over the past two days. Throughout November 9, it remained weak and sank by about 1.4% to 83.07 rubles/$. But with the start of the meeting, the national currency, on the contrary, strengthened — by 17:00 Moscow time, the "American" was trading at 82.81 rubles.
In general, stocks react faster to the information background and investors' expectations, whereas the exchange rate depends on the balance of export earnings and import payments, the tax period, the sale of foreign exchange earnings and the demand of importers, explained Denis Astafyev, fund manager and founder of the SharesPro fintech platform. In addition, the ruble is now under pressure from cheaper oil. By 17:00 Moscow time, Brent was trading at $89.56 per barrel, and Urals at $71.73 per barrel. Therefore, multidirectional dynamics of stocks and currencies is possible in the near future.
Experts have identified three possible scenarios for the development of events and how they will affect the market. According to their estimates, the most likely scenario is that in the coming weeks the Moscow Exchange index will fluctuate in the range of 2400-2550 points, and the dollar will cost 80-85 rubles.
Scenario 1: the parties have made progress in resolving the conflict
With significant progress in negotiations and progress towards a settlement in the next two to four weeks, the ruble may strengthen to 77-80 per dollar, and the Moscow Exchange index may rise to 2,700 points, experts interviewed by Izvestia believe.
The shares will be supported by a reduction in the geopolitical risk premium and expectations of easing sanctions pressure, Denis Astafyev from SharesPro is confident. The ruble's reaction will be more restrained. Improving the terms of external settlements will support exporters and increase the inflow of foreign exchange earnings, while restoring imports will simultaneously increase demand for foreign currency. Due to this, the ruble will get stronger, but not much, the expert explained.
Also, the negotiations on Ukraine will have a small impact on the price of gold and bitcoin. For these assets, the situation in the Strait of Hormuz and the associated oil price dynamics are more important. In the event of a positive outcome of the meeting, bitcoin may increase moderately - about 1-2% (at 16:00 Moscow time it cost up to $74.4 thousand), and gold may decrease by 5% (at 16:00 Moscow time it was trading at $4.08 thousand per ounce), experts estimated. Nevertheless, the dynamics will depend mainly on the Fed's policy and the dollar exchange rate. At the same time, an improvement in the geopolitical situation will weaken the demand for the precious metal as a protective asset and lead to its cheapening.
However, even with a favorable conclusion to the negotiation process, a number of risks will persist in the medium term. The main sanctions and restrictions on international settlements will continue to apply, and oil revenues will remain volatile, Denis Astafyev noted. In addition, the cost of lending and the ability to refinance debts are still important for businesses, and monetary policy in the Russian Federation remains tight.
Overall, the progress of the negotiations is likely to be limited, said Mikhail Khachaturian, Associate Professor at the Department of Strategic and Innovative Development at the Financial University. According to him, the current meeting is more of a technical nature, and the positions of Russia, the United States and the EU remain the same for now. Therefore, a radical improvement in the situation should not be expected immediately. At best, this will happen after a while — now the foundation is only being laid.
Scenario 2: there will be no new agreements, no escalation of the situation
If the meeting in the Emirates does not lead to fundamental breakthroughs, but also does not cause escalation, then the Moscow Exchange index will soon fluctuate between 2400-2550 points, and the dollar will cost about 80-85 rubles, analysts believe. By the way, they consider this outcome of the meeting to be the most likely.
The markets are responding positively to the prospect of a settlement, but expectations should not be confused with real economic changes, said the associate professor of the Department of Political Analysis and Socio-Psychological Processes at the Russian University of Economics. Plekhanova Pavel Sevostyanov. Even significant diplomatic progress does not automatically mean the return of foreign capital, the lifting of sanctions, or the restoration of previous trade and investment ties. This will require specific political and economic decisions, he says.
Deputy Minister of Foreign Affairs of the Russian Federation Mikhail Galuzin, Assistant to the President of the Russian Federation Vladimir Medinsky and Deputy Chief of the General Staff of the Russian Armed Forces - Chief of the Main Directorate of the General Staff Igor Kostyukov at a trilateral meeting of representatives of Russia, the United States and Ukraine in Abu Dhabi
It is easier to agree on common positions than to agree on specific security guarantees, the sequence of further steps and the conditions for possible easing of sanctions, Denis Astafyev believes. Therefore, maintaining the negotiation process without quickly reaching comprehensive agreements can be considered as a basic scenario.
In a neutral scenario, the price of gold may fluctuate within 2% in both directions, experts estimated.
Scenario 3: there will be no result, but the contradictions will intensify
In case of failure of negotiations, the Moscow Exchange index may roll back to the level of 2200-2300 points, analysts predict. This will be due to a deterioration in investor sentiment, increased uncertainty and profit-taking after the previous market upswing based on expectations of diplomatic progress, explained Oleg Abelev, head of the analytical department at the Rikom-Trust investment company.
In the short term, the ruble is likely to respond by weakening against the background of increased geopolitical risks, increased uncertainty and increased demand for defensive assets, he explained. In the first weeks after the meeting, the exchange rate may approach the level of 90 rubles/$, experts interviewed by Izvestia believe.
However, after that, in the longer term, the national currency may strengthen, Oleg Abelev added. According to the expert, continued tension will not necessarily lead to a decrease in world oil prices. In this case, Russian exporters will continue to receive significant foreign exchange earnings, which will ensure the supply of foreign currency in the domestic market and support the ruble.
Gold, on the contrary, may rise in price due to the return of the geopolitical premium: in the context of increased international tensions, investors traditionally show more interest in defensive assets. According to experts, the precious metal in this case can add up to 5% in price.
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