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Market Update

U.S. Stocks Stable as Russia Grapple with 1998-style Crisis


Author: Nichole Harper
ticker.com
Last Update: 1:17 PM ET December 16 2014

U.S. stocks stayed and oil prices in New York at least for today were stable after Russia faced foreign exchange crisis.

Fear gripped world financial markets after oil price weakness sparked currency crisis in Russia and European markets struggle with economic fallout.

Fed policy makers began two-day meeting and economists and traders debated the prospect of first rate increase in several years as the global economies slows and the reported inflation stays below the Fed target.

Russian Crisis

Russia took unusual and emergency steps to stem the falling ruble but failed to calm nervous markets.

Russia hiked its reference rate by 650 basis points at mid-night Moscow time to 17% and also arranged a bailout of Rosneft OAO, one of the largest oil companies in the nation.

Russia’s central bank arranged emergency financing of $10 billion for Rosneft as the state controlled struggle to rollover its debt at the end of this month.

The surprise move heightened tensions in the currency market and forced the ruble down to a record low on the worries of other bailouts that may be necessary in the next two weeks.

The sanctions on Russian companies forced the state-controlled oil company to repay its debt, which would have been rolled over under normal circumstances.

Russia’s central bank issued 625 billion yen in exchange of Rosneft bonds and those rubles were exchanged in the currency market for dollar, surprising traders and driving the exchange rate down to as low as 80 before recovering to 72 against the dollar.

Russian companies are scheduled to repay $30 billion by the end of this month and additional $130 billion are due next year.

With dollar in short supply and wide ranging sanctions from the European Union and the U.S., Russian companies are facing foreign exchange crisis.

The sudden collapse of Russian currency played out with sharp declines in values of currencies of Brazil, Mexico, Indonesia and Turkey.

Russia is bracing for more stringent measures including capital controls and sharply lower government spending.

Russian government announced measures to cut government spending by 500 billion rubles before the Rosneft transaction, but traders overlooked the announcement and still sold ruble.

Russia’s dollar denominated stock index, RTS index declined 12% and extended December-month loss to 33% and for the year plunged 42%.

Middle East Markets Plunge

In addition, Middle Eastern market indexes took another hit and the benchmark indexes of Abu Dhabi and Dubai plunged more than 7% and Saudi Arabian index extended losses to 20%.

Crude oil futures dropped below $55 a barrel for the first time in more than five years.

Gold was not immune from the chaos in the financial markets and declined $14.80 or 1.23% to $1,192.20 an ounce.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc