Monday, February 9, 2009

Russia to Default on Debt… $400 billion hoping to be "rescheduled"

News of a request to reschedule $400 billion of their debt amounts to national default. This has caused large moves in the currency markets, our dollar is up strongly as a result and our stock futures are down.
Euro Falls on Report Russian Banks May Seek to Reschedule Debt

By Ron Harui and Yasuhiko Seki

Feb. 10 (Bloomberg) -- The euro fell against the dollar and the yen as a Nikkei newspaper report that Russian banks and businesses may seek to reschedule $400 billion of foreign loans deepened concern financial turmoil in Europe is worsening.

The yen also ended a three-day loss versus the euro after European finance ministers signaled increasing concern that some governments are finding it harder to borrow in financial markets. The dollar strengthened on optimism that the U.S. government’s stimulus and bank-rescue packages will help spur growth in the world’s largest economy.

“European banks may face more financial difficulties, given the Nikkei’s report that Russian banks may negotiate a debt rescheduling,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France’s third- largest bank by market value. “This is likely to cause risk aversion. It is natural that the euro is sold and the yen is bought.”

The euro fell 1.4 percent to $1.2826 as of 1:20 p.m. in Tokyo from $1.3003 late in New York yesterday. Europe’s single currency slipped 1.5 percent to 117.18 yen. The dollar was at 91.35 yen from 91.46 yen. The euro may weaken to $1.27 and 117 yen and the dollar may depreciate to 90 yen today, Saito said.

The British pound climbed to 86.57 pence per euro from 87.28 pence. The yen rose 1.4 percent to 61.18 versus Australia’s dollar and 1.2 percent to 48.64 against New Zealand’s dollar.

Financial Difficulties
The euro weakened versus 13 of the 16 most-active currencies after the Nikkei newspaper said the Russian Association of Regional Banks has submitted a plan to the Russian government for rescheduling loans, citing an interview with Anatoly Aksakov, the head of the association. The group is already in talks with HSBC Holdings Plc and Deutsche Bank AG, the Nikkei reported.

Liliya Khalikova, Aksakov’s spokeswoman, confirmed that the Nikkei had interviewed the head of the association. She declined to confirm or deny the contents of the interview.
“The Nikkei report of rescheduling debt is driving the euro lower because European financial institutions have a bigger exposure to Russia than their counterparts in other countries,” said Takashi Kudo, Tokyo-based director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp., Japan’s largest fixed-line phone company.

Kazakhstan’s banks may have their ratings cut as the devaluation of the nation’s currency makes it harder for them to repay foreign debt and “substantially increases” credit risk, Moody’s Investors Service said yesterday.
Here’s a chart showing the move on our dollar futures /DX on the left and the EUR/JPY cross on the right:

In general, our dollar going up or the EUR/JPY cross going down is bad for stocks. The S&P futures are sitting right on support in the 850 area.

UPDATE: Russia is now denying that they are asking for new terms and claim that the story run in the Nekkei newspaper is false... hmmm, we'll see.