Back
17 Mar 2014
EMEA EM Express: Crimea votes to join Russia, adopts ruble as official currency
FXStreet (Łódź) - Global markets have reacted with calm to Crimea's vote in favor of joining Russia in yesterday's referendum, and are currently waiting for further developments. The EU and the US have already signaled that more sanctions could be imposed on Russia in the upcoming days if it continues breaching the territorial integrity of Ukraine.
The situation is not that simple however, as Europe is heavily dependent on Russia's gas supplies. Should Moscow curb its exports of gas to Europe as a response to the sanctions, the countries which would suffer the most would be in in Central and Eastern Europe, in the opinion of the Rob Carnell, Chief International Economist at ING, as it is “less well-shielded from interruptions to Russian/Ukrainian supply and also has fewer back-up options in terms of diverted supply from other regions of Europe.”
Nevertheless, the analyst reminds that this winter was rather mild so the “current European gas demand is at the low end of historical averages and European storage is historically high. Of course, this could embolden EU negotiators to take a harder line on Russia than otherwise, encouraging greater retaliation.”
Meanwhile, the Russian Central Bank announced on Friday that it would maintain the key rate at 7%, as high inflation risks and “unstable external conditions and a rise in financial market volatility are conducive to an increase in economic uncertainty,” according to the official release. The RCB added that it did not intend to hike the key rate in the upcoming months.
“The pledge not to cut rates in the coming months suggests that the economy/banks should not hope for any near-term policy easing and more likely focus on a chance of policy tightening if Crimea/Ukraine developments fuel extra markets panic,” Dmitry Polevoy from ING believes. “Our updated CPI projections flag rates may stay there till 1Q15 when it could start unwinding the recent policy move gradually.”
Furthermore, in the last hour it was reported that Crimea has already taken steps to adopt the Russian ruble as its official currency and it setting up a central bank. The region's Deputy Prime Minister Rustam Temirgaliyev said that Crimea would receive 1 billion rubles from Moscow to help stabilize its financial situation.
Economic data
On Friday the Polish the Central Statistical Office informed that on a monthly basis inflation rose by 0.1% for the third running month in February. Year-on-year CPI acceletarted to 0.7% from the previously recorded 0.5%.
Rafał Benecki from ING projects that “yearly average CPI in 2014 should stay barely above 1% YoY and that calls for unchanged rates in 2014.”
“We expect the first hike in 1Q15 only. The market has already priced the low CPI trajectory after last week’s MPC meeting when the Council decided to prolong forward guidance on unchanged rates till 3Q14 vs 2Q14 declared so far, and that is why after the CPI release the FRA and 2Y IRS barely moved.”
Also on Friday the the Czech Statistical Office released year-on-year Construction Output numbers for January, which came in at 5%, up from 3.6% in December. Industrial Production on the other hand slowed down to 5.5%, from 9.3%.
On Monday Turkey reported that the three month Jobless Average was at 10% in December, slightly up from 9.9% seen in November.
The Slovak Republic also released inflation data for February, revealing a 0.1% fall on a monthly basis, compared with the 0.3% increase in January.
The Czech Republic's month-on-month PPI remained flat in February, after dropping 1.3% in January. On an annual basis PPI declined by 0.7% for the second running month.
Technicals
The US dollar surged to two-week highs against the Russian ruble on Monday, following the Crimea vote and the subsequent rise in Russian shares. It reached a session hight at 36.723 in the European morning. Russia's Micex Index rose to 2.4% in the afternoon in Moscow, after registering a 7.6% decline last week.
On Friday the daily FXStreet Trend Index for USD/RUB was slightly bullish, with the OB/OS Index overbought. RSI was neutral at 72.7575 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 3971 pips, with ATR (14) shrinking at 3097 pips. The 1D 200 SMA is at 33.2333, while the 1D 20 EMA at 36.0159.
The USD/UAH closed at 9.60 and its daily FXStreet Trend Index was slightly bearish, with the OB/OS Index neutral. RSI was neutral at 61.1225.
The situation is not that simple however, as Europe is heavily dependent on Russia's gas supplies. Should Moscow curb its exports of gas to Europe as a response to the sanctions, the countries which would suffer the most would be in in Central and Eastern Europe, in the opinion of the Rob Carnell, Chief International Economist at ING, as it is “less well-shielded from interruptions to Russian/Ukrainian supply and also has fewer back-up options in terms of diverted supply from other regions of Europe.”
Nevertheless, the analyst reminds that this winter was rather mild so the “current European gas demand is at the low end of historical averages and European storage is historically high. Of course, this could embolden EU negotiators to take a harder line on Russia than otherwise, encouraging greater retaliation.”
Meanwhile, the Russian Central Bank announced on Friday that it would maintain the key rate at 7%, as high inflation risks and “unstable external conditions and a rise in financial market volatility are conducive to an increase in economic uncertainty,” according to the official release. The RCB added that it did not intend to hike the key rate in the upcoming months.
“The pledge not to cut rates in the coming months suggests that the economy/banks should not hope for any near-term policy easing and more likely focus on a chance of policy tightening if Crimea/Ukraine developments fuel extra markets panic,” Dmitry Polevoy from ING believes. “Our updated CPI projections flag rates may stay there till 1Q15 when it could start unwinding the recent policy move gradually.”
Furthermore, in the last hour it was reported that Crimea has already taken steps to adopt the Russian ruble as its official currency and it setting up a central bank. The region's Deputy Prime Minister Rustam Temirgaliyev said that Crimea would receive 1 billion rubles from Moscow to help stabilize its financial situation.
Economic data
On Friday the Polish the Central Statistical Office informed that on a monthly basis inflation rose by 0.1% for the third running month in February. Year-on-year CPI acceletarted to 0.7% from the previously recorded 0.5%.
Rafał Benecki from ING projects that “yearly average CPI in 2014 should stay barely above 1% YoY and that calls for unchanged rates in 2014.”
“We expect the first hike in 1Q15 only. The market has already priced the low CPI trajectory after last week’s MPC meeting when the Council decided to prolong forward guidance on unchanged rates till 3Q14 vs 2Q14 declared so far, and that is why after the CPI release the FRA and 2Y IRS barely moved.”
Also on Friday the the Czech Statistical Office released year-on-year Construction Output numbers for January, which came in at 5%, up from 3.6% in December. Industrial Production on the other hand slowed down to 5.5%, from 9.3%.
On Monday Turkey reported that the three month Jobless Average was at 10% in December, slightly up from 9.9% seen in November.
The Slovak Republic also released inflation data for February, revealing a 0.1% fall on a monthly basis, compared with the 0.3% increase in January.
The Czech Republic's month-on-month PPI remained flat in February, after dropping 1.3% in January. On an annual basis PPI declined by 0.7% for the second running month.
Technicals
The US dollar surged to two-week highs against the Russian ruble on Monday, following the Crimea vote and the subsequent rise in Russian shares. It reached a session hight at 36.723 in the European morning. Russia's Micex Index rose to 2.4% in the afternoon in Moscow, after registering a 7.6% decline last week.
On Friday the daily FXStreet Trend Index for USD/RUB was slightly bullish, with the OB/OS Index overbought. RSI was neutral at 72.7575 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 3971 pips, with ATR (14) shrinking at 3097 pips. The 1D 200 SMA is at 33.2333, while the 1D 20 EMA at 36.0159.
The USD/UAH closed at 9.60 and its daily FXStreet Trend Index was slightly bearish, with the OB/OS Index neutral. RSI was neutral at 61.1225.