FX, Rates & Oil Monitor - September 22, 2017

> Global. Beyond this weekend's German parliamentary elections, attention will fall on President Trump's efforts to kick start his tax reform. China kicks off its National Congress on October 18 and Japan is set to hold parliamentary elections on October 22.
> Fed/ECB. On September 20, the Fed retained its outlook of one more hike this year and three 25 bp hikes in 2018. Since a December 13 is only 60% priced in, if it raises rates, the dollar will benefit. The biggest upcoming event risk is the ECB meeting on October 26, when the bank will announce plans on tapering its current QE, due to expire at end 4Q17, starting in 2018.
> Ruble. This month, the ruble is flat, despite the Brent price rising by more than 10%, as well as Russia's attractive yield. We think the ruble will gain beyond 57 in the near term, as exporters are set to increase their activity and oil prices should remain high. In addition, carry trade inflows should persist. Still, we retain our view that USD/RUB will reach 60 by year end ahead of bigger FX interventions and amid higher external debt redemptions, which may cause FX liquidity problems.
> Rates. This month's 50 bp rate cut was based on a sharp fall in CPI to 3.3%. Based on our forecast for CPI at year end to be just 3.4%, we anticipate CBR rate cuts of 25 bps at both remaining meetings this year. The RUONIA rate should rise back close to the key rate in the coming months, and we expect the CBR to manage the current woes in the banking sector.
> Oil. So far in 3Q oil prices have surged 20% to recover all losses in 2Q. In 4Q, we expect the market rebalancing to continue, helping Brent to stabilize at $55/bbl and end 2017 at $56/bbl. Support is expected in the lead-up to November's OPEC summit, with an output cut extension and inclusion of Nigeria both likely.
> Geopolitics. New UN sanctions have had no impact on North Korea, while on September 19 President Trump said the US may have to "totally destroy" North Korea. Given the personalities involved, markets have been too relaxed about this issue.