Russia FX Beat - July 11, 2017

> Today's focus. FOMC member Lael Brainard speaks on normalizing central banks' balance sheets.
> Global trigger: Global spike in bond yields. This week brings some very significant monetary policy events in the US. In addition to Janet Yellen, who will speak tomorrow, four other FOMC members are slated to speak. They will discuss the Fed's balance sheet and monetary policy in general.
The US also sees the release of important economic data: June inflation, retail sales and industrial production are due. Risk sentiment will be significantly influenced by 2Q earnings reports due to be released by major US banks, including JPMorgan and Citibank this Friday.
The oil market will get important data, too: besides the weekly EIA oil market report, the IEA will release its world energy report, which will provide estimates of world demand and OPEC monthly production.
Today the API will release its weekly oil inventory report. The market expects a 2.85 mln bbl draw. Brent is struggling to get back to $47-48/bbl, despite calls by OPEC for Libya and Nigeria to accept crude output limits. Russia, meanwhile, has called for a smooth exit from the OPEC agreement and has voiced opposition to any further cuts.
> Bottom line. This morning the US 10y Treasury and German 10y Bund are up by more than 2 bps in yield apiece, driving EM currencies lower. RUB and ZAR are down 1% apiece and TRY 0.75%. EUR/USD is trading near 1.1400.
> Regional trigger: Local bid and EM selloff. When USD/RUB hit an intraday high above 60.50 yesterday, corporates and foreigners began to sell dollars. As a result, there was some buying at the long end of the OFZ curve. However, volumes remained low, barely reaching $3.5 bln on MOEX.
This morning USD/RUB has spiked to over 60.80, driven by local bids for dollars and the general EM selloff after the spike in global bond yields. Still, we expect some recovery during the day thanks to FX selling by exporters and foreigners.
The National Bank of Kazakhstan announced yesterday that it had sold $101 mln of FX in June. It did this for the first time since August 2016, in an effort to support the tenge, which has been hit by the recent slump in oil.
> Bottom line. The EM selloff should keep USD/RUB elevated, close to 60.50.