Russia FX Beat - December 21, 2017

> Today's focus. Russian taxes and dividends. Yudaeva speaks.
> Global trigger: UST yields climb. The US Congress passed President Trump's tax reform bill yesterday. Trump has therefore delivered on a major campaign promise. This helped UST yields extend a recent move higher, with the 10y yield touching 2.50%, the highest since March. Given the Japanese yen's well-established negative correlation with UST yields, it was a clear underperformer.
Today at 16:30 Moscow time, the US releases revised 3Q GDP growth, which should be confirmed at 3.3% Q-o-Q annualized, the fastest since 3Q14. In Europe, the focus is on elections in Catalonia and an EU leaders' summit. Tension within the EU is rising over a decision to take disciplinary action against Poland's government for undermining democratic processes.
> Bottom line. EUR/USD to head back toward 1.1850.
> Regional trigger: Taxes and dividends. USD/RUB held in a narrow 58.6-58.8 range yesterday. This meant that the ruble lagged most other EM currencies. Leading the way was the South African rand, which was still buoyed by local political developments. The Hungarian forint and Polish zloty also outperformed, as they usually do when the euro is rising. The general positive sentiment in EM FX was highlighted by the fact that the MSCI EM FX index yesterday touched a three-year high.
Despite the quieting of markets heading into the year end, there are a few flow-relevant factors to consider for the ruble. This month's main tax day falls on December 25. With around R860 bln due, FX conversions should lend support to the ruble. We also note the upcoming payment of an interim dividend to Lukoil shareholders. The record date for this is tomorrow, with the payment in rubles due no later than January 12. More than R72 bln is to be paid, with over half of this amount likely to be converted into FX for GDR holders.
Yesterday, Finance Minister Anton Siluanov reportedly said that VEB would "gradually" convert $6.25 bln into rubles over an unspecified period of time without impacting the FX market. Amid the lack of clarity, the ruble seemed unbothered by the headline. To put this sum into context, daily ruble turnover has averaged $4.5 bln in 2017, while the Finance Ministry is currently buying close to $4 bln per month.
> Bottom line. We expect USD/RUB to push toward 58.50 and perhaps lower today. CBR First Deputy Governor Ksenia Yudaeva speaks at 15:00.