Oil higher - Weaker RUB - CEE - Baltics - Banks - Nok/Sek

Oil price inching higher as assets are getting a reprieve from the US "bad bank" solution and US stimulus packages getting approved.

The RUB seems to have already left its consolidation area as its weakened against the Usd by close to 6% over the last two days, despite the USD correcting lower as well. The biggest two day drop in a decade, reaching the lowest level since the RUB crisis of 1998.
The strength of the RUB from last week was mainly attributed to VAT payments by local corporates and was expected to last til the end of this month.

Now it seem the bulk of it has already been done and we are back on track for a continued weakening RUB again. The new corridor established by the CBR leaves the RUB weak limit at 41 vs the basket and roughly 36 vs the Usd. Russia is in dire straits and still slipping on that slippery slope.
With no reprieve despite an Oil price inching higher and VAT payments still in the works. It seems to me there is a set up for further weakening. I expect further work for the CBR at 36 vs the Usd, reducing the countrys FX reserves towards the crucial 200 BN Usd mark. The risk has increased that CBR will simply let the RUB float.
I am long Usd/Rub.

This development will put further pressure on the CEE countries, worsening their already precarious situation. PLN alledgedly still have a large number of corporates suffering from their Fx options positions gone horribly wrong, with a steelcompany already gone bust because of it. (See article from the 15 Dec "FX;PLN; Corporate hedging gone horribly wrong")

These (at these levels) deep ITM options still need to be unwound, putting pressure on the PLN in the process. PLN will likely remain highly volatile due to this near term, with a weakening bias. I am short PLN.

Ive ranted so much about the Baltics by now that Im getting tired of it myself. Anyway, with the above taking place in the RUB and the CEE, the Baltic position is simply unsustainable. Ill leave it at that.

All banks were not created equal, neither were their centralbanks nor their governments.
This is noncontroversial. Still, the US measures and its positive impact on US banks are also benefitting the European banks to a very similar extent. It is simply not applicable to certain European banks at this stage. Break up the global bank stock correlations.

I mentioned this yesterday, but its worth reiterating.
I am long US banks stocks, short European ones. (Clue; short the ones with huge lending links to the CEE and especially fixed currency regimes within that area where the corporates and households have borrowed in a foreign currency,,,,).


As mentioned earlier, the SEK is a very much undervalued currency on any fundamental valuation, BUT, with the nearterm Baltic/Ukrainian, PE and Bank havoc to come, I will await these events first. As Ive mentioned in my piece from the 12 Jan, ("Reasons to be long Nok/Sek"), Norway is in a different situation due to their fiscal measures and them being funded by the Norwegian Petroleum/Pension fund. It is still very much valid.

Nok/Sek has had its biggest monthly gain since the fall of 2001 so far and I am looking for it to continue. We should be heading north of 1,20 to test the 1.20-1.21 area before long.

I am looking to add to my long Nok/Sek on any dips towards the 1.18 area.
I have taken profit on my long Eur/Usd position and am now short on the back of ECB once again proving themselves to be extremely unwilling to cut any interest rates. This will lead to increased riskaversion again, hurting the Euro.


Summary;
The RUB depreciation will have a very negative impact on the CEE currencies, the Baltics, the European Equities in general and especially the Banks due to increased creditloss refocus.
Dragging down the Euro (with the ECB assisting) in the process. Nok/Sek will also benefit from this.



As always, good luck












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