Russia FX Beat - January 11, 2018

> Today's focus. ECB minutes and Russian FX intervention data.
> Global trigger: China suggests "fake news." The US bond market is very much in focus, with the UST 10y yield this week pushing above 2.50%, leading some to claim a bear market in play. To be clear, this is not related to any new developments regarding the outlook for Fed rates in 2018.
UST yields rose yesterday on a Bloomberg report that China was considering a halt or reduction in US Treasury purchases (it has holdings worth $1.2 trln), exacerbating a mood in bond markets that was already negative due to talk that central bank balance sheets will peak this year. China's FX regulator delivered comments overnight that calmed the concern, however, saying the earlier remarks may have been "fake news."
The moves in the UST market are having a mixed impact on currencies. The overall mood was one of greater caution, with the likes of the South African rand and Turkish lira weakening.
Today sees US PPI data, ahead of CPI tomorrow. ECB minutes to its December 14 meeting may offer clues on future tapering.
> Bottom line. UST volatility elicited a more risk-averse mood, but a calmer situation today may keep EUR/USD near 1.1950.
> Regional trigger: Record high FX intervention to be announced. USD/RUB held steady at close to 57 yesterday, rejecting a sustained move below important support at 56.75-56.80 - the September low. Ruble stability, helped by active sales of FX by exporters, delivered an outperformance to EM FX peers. Yesterday's December CPI confirmed the annual reading at 2.5%, the lowest rate in modern Russian history.
Yesterday morning demand for FX liquidity was again elevated. However, the CBR supported markets by offering an unprecedented $3 bln via MOEX O/N USD/RUB swaps. Although only $0.8 bln was borrowed, this was enough to generate positive momentum. Implied ruble rates grew from below 5% to almost 8.75% (the upper bound of the CBR interest rate corridor) at the close. This indicates that the market has started to stabilize, and we expect the O/N basis (spread between swaps and interbank deposit ruble rates) to narrow due to FX liquidity inflows, given the strong current account in 1Q.
Today at 12:00 Moscow time the amount of FX to be purchased over January 15 to February 6 on behalf of the Finance Ministry will be announced. We expect to see a record R260 bln, or $4.5 bln, which is around $265 mln per day. This should offset the ruble appreciation pressures.
> Bottom line. USD/RUB may hang around the 57 level today.