FX, Rates & Oil Monitor - July 6, 2017

> Fed/ECB. When the Fed will next raise rates and begin reducing its balance sheet is the focus heading into Chair Yellen's testimony to Congress on July 12-13. The July 26 policy meeting is set to be a non-event. On July 20, the ECB will also hold its policy steady, while investors will watch whether President Draghi retains an upbeat mood.
> Ruble. The ruble has not been fully participating in the recent recovery in oil prices. Local factors, meanwhile, should be the key determinant of the ruble during July. We think USD/RUB will settle above 60 in what is a period of seasonal weakness for the currency. The US is set to pass into law new sanctions on Russia.
> Dividends/Corporate/Tax. FX selling activity in June was subdued but will pick up sharply at the end of July, as exporters raise rubles for major dividend payments. This could give the ruble some additional support. However, both before (i.e. first half of July) and after (first half of August) this period, the net negative effect of dividends should be negative for the ruble.
> Rates. We think 25 bp rate cuts will be the modus operandi of the CBR for the rest of the year. However, should the ruble fall and the pick-up in food price inflation feed into overall CPI, a pause even on July 28 is possible. Inflation in June is set to rise to 4.2%, the first increase in a year. The CBR is now focusing more on the 12-month moving average of CPI, which is at an elevated 5.6%.
> Oil. Oil prices recently collapsed by 20% only to then reclaim half of this loss. In 2H17, we expect supply and demand to become more balanced, helping Brent reach $50/bbl by year end. Oil ministers are to meet in late July, but Russia has poured scorn on the idea that producers could consider further cuts.
> Geopolitics. US Congress is racing to pass new sanctions against Russia by the end of July. Prior to this, Presidents Putin and Trump will meet at the G20 summit. A coordinated response to developments in North Korea appears hard to achieve.