By Josie Cox
The Russian ruble hit a fresh record low against the U.S. dollar
Monday, burned by continuing fighting in Ukraine over the weekend
and European Commission President José Manuel Barroso warning that
the situation was approaching "a point of no return."
The dollar rose by 1.2% to 37.50 against the ruble in early
trade, surpassing the previous record set on Friday. Moscow's Micex
slipped into the red having clung to a slim gain earlier in the
day, while the dollar-traded RTS index lost 1.5%. Since last
Monday, the Micex is down just over 3.5%, while the RTS has
declined by almost 7%.
On Sunday, Ukrainian government forces lost more ground to
Russian-backed separatists in heavy fighting in the east of the
country. While on Saturday, European leaders threatened to impose
more sanctions on Moscow if it doesn't end its support for the
rebels.
"While guns are firing there is no way one could expect the
market situation to normalize. The peak isn't passed yet," said
Igor Akinshin, a dealer at Alfa Bank in Moscow.
Egor Fedorov, an analyst at ING Bank in Moscow said that
pressure was also being heaped on the currency by reports the U.K.
has proposed banning Russian banks from the SWIFT network.
"That could result in short-term disruptions in interbank
payments and security settlements," Mr. Fedorov said. Andrew
MacFarlane, a strategist at Mitsubishi UFJ Securities International
PLC said that for the time being, "obtaining full European Union
agreement on that may prove difficult."
European stocks put in a lackluster performance Monday too,
chiefly weighed by the geopolitical tensions but also by data
showing that manufacturing activity in the euro zone slowed even
more sharply than first estimated in August, due in part to a
weaker performance than first estimated from Germany.
By midmorning the Stoxx Europe 600 was flat on the day, while
the U.K's FTSE lost 0.1%, Germany's DAX 0.2% and France's CAC 0.3%.
In the U.S., the S&P 500 was indicated falling 0.1%. Futures,
however, don't necessarily reflect moves after the opening
bell.
The euro continued its slow slide against the greenback,
touching a near-year low of $1.3119 before rate announcements from
both the European Central Bank and the Bank of England later in the
week.
Several banks, including BNP Paribas, RBC and Nomura, expect the
ECB to trim interest rates in a further bid to fuel the sluggish
recovery.
Last month, ECB President Mario Draghi hinted that the central
bank could be preparing further stimulus, even raising the prospect
of quantitative easing. Some economists have said, however, that
the central bank is likely to want to gauge the impact of its June
measures and assess the take up of the targeted longer-term
refinancing operation before taking further action.
Back in equity markets Swiss drug maker Novartis AG led the
pan-European index, adding more than 3% after a positive testing of
its LCZ696 heart drug. Fabian Wenner, an analyst at Kepler
Cheuvreux, raised his target price to 87 Swiss francs from 81
francs.
France's Iliad SA, which is trying to buy U.S. operator
T-Mobile, was one of the biggest losers on the index after the
telecom operator reported a fall in first-half net profit on
Friday.
In commodities markets Brent crude oil lost 0.15% to trade at
$103.04 a barrel, while gold added 0.1% to $1,288.50.
-- Andrey Ostroukh in Moscow contributed to this article
Write to Josie Cox at josie.cox@wsj.com