Russia FX Beat - February 7, 2018

> Today's focus. US equity markets and Russian CPI data.
> Global trigger: A temporary calm? US equity market volatility persisted yesterday, with the S&P 500 ending the day up 1.7%, for its biggest daily gain since Trump became US president. The bounce was all the more impressive given that the market opened the day more than 2% lower. Following the lead of equity markets, UST yields also recovered, with the 10y yield climbing 10 bps to 2.75%.
Understandably, there have not been any knee-jerk reactions from policymakers to the recent market moves. Fed non-voter James Bullard labelled the selloff the "most predicted" one "of all time," while the ECB has reportedly kept in touch with market participants to check for any risks to financial stability.
Fortunately, today's data schedule is relatively quiet. Several Fed members speak, while Poland, Brazil and New Zealand all deliver rate decisions. In the US, the focus is again on attempts to avert a new government shutdown on Friday by passing a short-term spending package.
> Bottom line. If the market rally continues today, commodity currencies such as the Canadian dollar, Australian dollar and Brazilian real should gain the most.
> Regional trigger: Ruble reverses yesterday, CPI due today. Yesterday, USD/RUB opened quite high at 57.4, but then was quickly pushed down by exporters happy to sell FX at this level. Later on, risk aversion temporarily returned to markets, and the ruble fell back to its lows. However, the US open brought relief, and liquid EM currencies including the ruble finished with gains of around 0.6%. Overall, yesterday's trading activity was quite high: USD/RUB turnover on the Moscow Exchange reached $6.3 bln, well above the average of around $4 bln.
Overnight, API data showed an unexpected 1 mln bbl dip in US crude inventories. Oil prices were up almost 1% this morning in response. With EM FX also rising, we expect the ruble to follow suit.
Today, Russia's January CPI is to be released. If it is in line with the weekly data, we expect an m-o-m gain of 0.3%, resulting in a record-low 2.2% y-o-y. This would be a rather solid argument for the CBR to cut the key rate by at least 25 bps on Friday (see "CBR Preview: 25 bp Cut and 100 More to Come," published yesterday). EIA oil inventories data comes out at 18:30.
> Bottom line. USD/RUB could fall to 56.7 on higher oil prices.