Russia FX Beat - December 8, 2017

> Today's focus. US labor report, Brexit deal, CBR blackout.
> Global trigger: US jobs report. Overnight, the US Congress passed a temporary spending bill to avert a government shutdown that would have started today. The two-week extension to December 22 allows for further talks on a longer-term bill and comes on top of frenzied efforts to pass a tax reform bill before Congress leaves for the year-end holidays.
Today's data focus is the US labor report for November, due for release at 16:30 Moscow time. The Bloomberg consensus envisages 195,000 additions. More important is the average earnings data, for which an increase to 2.7% y-o-y from 2.4% is expected. Some might be excited by that as a sign of building inflation pressure, but it would still be down from 2.8% in October.
The UK and EU this morning announced a divorce agreement on some key areas, including a financial settlement, rights for EU citizens living in the UK and the UK-Irish border. This means that talks can now move on to the future trading relationship. With negotiations set to be very complex, the race is now on to agree a trade deal before the UK formally leaves the EU in March 2019. Today's news alleviates some of the huge pressure on UK PM May. The pound has rallied sharply.
> Bottom line. A positive US jobs data could force EUR/USD toward its recent 1.1713 low.
> Regional trigger: CBR blackout period. USD/RUB held very steady near 59.20 yesterday. Given the strengthening dollar, this put the ruble at the top of the performance charts. The likes of the rand and real fell by 1% or more. The ruble was stronger despite the Brent price falling to test important support at $61.08/bbl. A close below that level today would imply downside risks for oil and the ruble.
Yesterday, the Finance Ministry said that foreign demand for OFZs may have peaked. In line with the CBR's position, it said that OFZ yields could rise by 40-50 bps were a selloff to occur. Heading into 2018, concern over sanctions on US investors buying Russian sovereign debt is prominent. The Finance Ministry says any impact on Russian debt would be "limited." At this point, we think it is unlikely that the US will extend sanctions to OFZs. If it did, the impact would be of a large order.
With the CBR decision a week away, its formal blackout period starts today. Unlike recent decisions, it does not look like the CBR will guide markets going into the meeting. Earlier this week, CBR official Igor Dmitriev said that he had no recommendation on what the CBR should do. We expect the CBR to cut 25 bps to 8%.
> Bottom line. USD/RUB is well balanced and might edge toward 59.40.