Roebel gets hit mercilessly hard

The trade war between the United States and China is attracting a lot of attention in the financial world. However, there is one country that has been hit even harder by the policies of US President Donald Trump.

The US stock market bounces in all directions after every message Trump posts on Twitter. Much attention is paid to the trade dispute with China. Meanwhile, another world power is already feeling the real pain of the confrontational course the US president is betting on. The Russian stock exchange and the ruble have fallen hard since the weekend as a result of new sanctions. The RTS stock index is down 13% in a matter of days. 

Hard measures
Trump announced new sanctions over the weekend. As part of these measures, US companies are no longer allowed to do business with (companies of) seven very wealthy Russian businessmen. In some cases this has serious consequences. For example, aluminum producer Rusal — owned by sanctioned oligarch Oleg Deripaska — is at risk of being unable to meet certain banking conditions. The company's share price has roughly halved within a few days. Other large Russian raw materials companies are also being hit hard by the measures. Trump has introduced the sanctions, among other things, in retaliation for Russia's meddling in the American elections.

bad memories
In the foreign exchange market, the ruble has fallen by 11% against the euro since the sanctions were announced. This sharp drop brings back memories of 2014, when the Russian currency also fell hard. At the time, a sharp drop in oil prices was the main culprit. Russia relies heavily on oil exports in balancing its budget. In this regard, there is precisely no cause for concern. Partly as a result of mounting geopolitical tensions, the price of a barrel of Brent oil has skyrocketed nearly 30% in the past XNUMX months to its highest level in more than three years.

Russia vs America
The US sanctions are annoying for Russia, but that is nothing compared to the pain of the sharply falling oil price in 2014. Despite some companies being hit hard by the sanctions, on balance the Russian economy is in good shape. According to Finance Minister Anton Siluanov, the country is even heading for a budget surplus this year.

In the short term, the ruble may come under some further pressure from mounting geopolitical tensions over the opposing interests of Russia and the United States in Syria. However, that will lead to a higher oil price, which will ultimately play into Russia's hands again. It therefore appears that the ruble shock is a temporary phenomenon rather than a structural reversal in the currency world.

Lawrence Martins

Laurens Maartens is a currency expert at the Dutch Payment and Exchange Company (NBWM). Maartens analyzes current currency developments and also provides lectures and training in the field of currency management.

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