In light of yesterday’s panic spreading across the Russian financial markets and the rouble dropping by as much as 19%, Exante spoke to Gregory Fishman, Managing Partner, Quantum Brains Capital, and its in-house expert George Grech, Head of Trade desk, to comment on the latest events.
How do you justify the actions of the Russian central bank?
Gregory Fishman: The central bank employs distinct experts who are doing everything they can. However, in order to resolve the ongoing situation, it is also necessary to have the will and the authority. People need to react as fast as if they are participating in Formula-1 racing. The markets see that there is no driver to take responsibility and needed actions, the problem is that everything is being executed through a layer of bureaucracy and micromanagement.
How then do you explain then the significant drop of the Russian rouble that the markets witnessed yesterday?
George Grech: The rouble initially reacted positively to yesterday’s news, however, the gains quickly evaporated as the markets continued to witness heavy RUB selling. There is a lot of demand for dollars in Russia at the moment. Despite the jawboning and decisive action of the Russian Central Bank, the RUB still hasn't found its footing.
Gregory Fishman: While there are numerous causes, there is only one reason – systematic one. What matters is that all of the negative marco trendlines intersected in one single point, which is why we arrived where we are now.
Do you think that the Russian Central bank has the right tools to control the RUB in the current environment?
George Grech: The RCB wanted a free floating currency and they certainly got one. The Central bank has the tools, however, is it worthwhile mentioning that there is a political dimension that probably needs to be addressed as well. While I cannot rule anything out, I do not think this is a 1998 scenario as many might say, Russia is in a much better debt position today.
Gregory Fishman: The Central bank is not an institution that governs something, it is a tool by itself that is being used to control the ongoing situation, but the reality is that it is not doing it successfully. This reminds me of a micromanagement scenario during crisis times when experts from other fields of expertise are being brought into. At the same time the number of available options is steadily decreasing and only a few are left. Thus, everyone wonders when restrictions on the free movement of the currency will be implemented and what will the further developments be.
What would be your forecasts for the Russian Rouble and what should we anticipate further?
George Grech: The accelerating weakness is a trend ending characteristic to me, not a starting one. While we could see more weakness over the near term, with overnight rates at 17%, I am more interested in acquiring roubles rather than selling them. However, I should highlighting that I would not bet the farm on them, I would use weakness to scale into positions.
Gregory Fishman: To those who trade FX instruments, I would just suggest to hedge, to hedge and to hedge once again against all possible risks. And it is necessary to remember that heavy-tailed distribution is much more prevalent in reality than predicted by theory.
Exante continues to monitor the latest developments in the financial markets. For more expert commentaries keep reading our news section. Moreover, we would like to inform you that Exante has not discontinued trading the Russian Rouble. In fact, we are ready to offer attractive trading conditions, you can get acquainted with them via the following link.