FX, Rates & Oil Monitor - November 10, 2017

> Global. The global backdrop is relatively quiet for now. Markets are unperturbed by tension in the Middle East. Most important in coming weeks will be US tax reform. Even though progress is likely to be limited, news flow may boost the dollar further.
> Fed. Financial markets breathed a sigh of relief when Jerome Powell was nominated to be the next Fed chair. Investors are now focusing on the December 13 Fed meeting, although a 25 bp hike is almost fully priced in. Important is whether the central bank alters its projection for three more hikes in 2018.
> RUB. USD/RUB has climbed above 59, with the dollar rally proving more powerful than surging oil prices, while foreigners have taken some profit on long ruble positions. However, we expect exporters to increase FX sales later this month to pay large MET taxes, although this will be partially neutralized by the $100 mln of FX purchases scheduled to be made every day until December 6 by the Finance Ministry. We expect USD/RUB to end the year at 60.
> Rates. The CBR cut rates by just 25 bps last month, despite CPI falling to a record low of 3% y-o-y in September. Stubbornly high inflation expectations remain the main obstacle to deeper cuts and we expect the CBR to maintain this view at its December 15 meeting and deliver another 25 bp cut, even though our forecast for year-end CPI stands at just 2.6%. Meanwhile, the RUONIA spread to the key rate has normalized somewhat.
> Oil. So far in 4Q17, oil prices have risen sharply, with Brent even nearing $65/bbl. We consider the current surge rather speculative and based largely on expectations of an OPEC+ deal extension through 2018 at OPEC's November 30 summit. In addition, 1H18 oversupply worries loom. In our view, such an ambitious extension is not a given, and an intermediate solution is likely to leave investors disappointed, with prices retreating as a result.