Russia FX Beat - January 12, 2018

> Today's focus. US inflation and retail sales ahead of holiday.
> Global trigger: US inflation update. A combination of lower than expected US PPI data and the release of quite hawkish minutes from the ECB's December meeting has pushed EUR/USD back above 1.20. The Hungarian forint and Polish zloty were the top performers, capitalizing on the positive backdrop.
The ECB indicated that, in view of the improving growth outlook, it might revise its forward guidance as soon as early this year. It could rule out an extension of QE beyond its current 3Q end date, an option it has kept open.
Today's focus is on US CPI and retail sales data for December, both due at 16:30 Moscow time. If CPI is soft, like the PPI data, the dollar may come under further pressure. We think CPI is more important than retail sales for the 1H18 Fed policy debate.
Arch ECB hawk Jens Weidmann speaks at 19:30, and the Fed's Harker at 20:00. On Monday, US markets are shut for a holiday.
> Bottom line. Weak US CPI data could push EUR/USD to 1.21.
> Regional trigger: FX buying at $4.5 bln this month. The Finance Ministry announced yesterday that it would purchase $4.5 bln between Monday and February 6, or $265 mln per day - in line with our forecast. With no purchases having taken place since December 28, the resumption of purchases will act as a headwind to the ruble not present in recent days. If the Urals price holds near to $70/bbl, FX buying will be close to $5 bln in both February and March, offsetting a good portion of a current account surplus that should be around $35 bln in 1Q.
CPI between January 1 and 9 was 0.2%, below the 0.3% recorded a year earlier. The reading increases the chance that inflation in January will slip further from December's 2.5% y-o-y pace, adding uncertainty over the CBR's February 9 decision, especially if activity data is soft.
The daily Kommersant reports that the US government may add 50 high-profile Russian figures to its list of sanctioned individuals. The report makes no mention of banning purchases of OFZs by Americans, which is the main focus of markets as the month-end deadline for a study of new sanctions nears.
> Bottom line. For a brief period overnight, Brent was trading above $70/bbl, the first time since late 2014. After breaking below 56.75, USD/RUB bias is toward 56.