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Why Did Russia Suspend Its Agreement with the US?

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Markets end higher due to Russia’s latest move

Markets closed on a positive note on October 5 for Russian equity investors. US ETFs invested in Russian equity delivered positive returns for the day. The VanEck Vectors Russia ETF (RSX) rose 0.75%, the iShares MSCI Russia Capped ETF (ERUS) rose 0.76%, and the Direxion Daily Russia Bull 3X ETF (RUSL) rose 1.7% on October 5. News of Russia’s latest move to retaliate against the economic sanctions imposed by the West led to the market gains for Russia.

Interestingly, the Russian stock markets gained well under President Vladimir Putin, as you can see in the following chart.

Putin and micex

 

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Russia has been reeling

On July 16, 2014, the US (SPY) (IWM) (QQQ) imposed certain economic and trade sanctions on Russia. The sanctions had a negative impact on the flow of investments and trade into Russia. The sanctions had been imposed as a result of Russia’s annexation of Crimea and its continued support of pro-Russian separatists in Ukraine.

Since then, sanctions and the fall in oil’s price (since mid-2014) have been weighing down growth in Russia.

Decision to retaliate

The Russian government seemed to be in the mood to retaliate. On October 3, the Russian government suspended a treaty with the US relating to cleaning up weapons-grade plutonium. The Plutonium Management and Disposition Agreement was signed between the two countries in 2000 as “an essential step in the process of nuclear disarmament.”

On October 5, the Russian government issued a directive suspending the agreement between Russia’s Rosatom nuclear corporation and the US Department of Energy. The agreement, signed in 2010, relates to the conduct of feasibility studies for the conversion of six Russian research reactors to low-enriched uranium fuel.

Russia stated “unfriendly actions” by the US government as the basis for its decision to suspend these pacts.

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