Russia FX Beat - July 14, 2017

> Today's focus. US CPI and retail sales.
> Global trigger: US dollar and Treasuries. The DXY lost almost 0.2% and the US 10y note fell 3 bps in yield after Fed Chair Yellen confirmed that a gradual approach to rate hikes remains the base case in her second day of testimony to Congress. The yield on the 10y note is trading higher this morning ahead of June CPI data (15:30 Moscow time), as Yellen commented that it is too early to conclude that the inflation trend is falling well short of the Fed's 2% target. A y-o-y CPI reading above 1.7% would be dollar-positive.
Retail sales and industrial production data for June is also due from the US today, and a handful of US banks are to report earnings, including JPMorgan Chase and Citibank.
Brent traded as much as 2.8% higher yesterday, at $48.41/bbl, after Chinese customs data showed a 1.33 mln bpd y-o-y rise in crude imports in June. The result exceeded expectations and was especially encouraging given that Chinese demand had stalled in previous months. In addition, the IEA raised its forecast for 2017 demand growth to the highest in two years. However, it was also reported yesterday that compliance with the output-cut deal among OPEC producers fell from 95% in May to 75% in June.
> Bottom line. A weak CPI reading could see EUR/USD break above 1.1440. Otherwise, it should hold below 1.1400.
> Regional trigger: Ruble-supportive flow. The ruble is heading into a period of supportive flows (which we have discussed on a number of occasions), so there is a good chance it will be able to shrug off a strong bid for dollars from some local banks (as we have seen before). Peak dividend season will last from July 17 until August 3. During the two-week period, over R700 bln in dividends (58% of the remaining 2016 dividends) will be paid, mostly by oil and gas companies. The more than $2.5 bln in FX that needs to be converted into rubles together with FX selling for June tax payments could mean as much as $6-7 bln of FX sales during the period, offsetting the $1 bln in FX purchases we project.
Still, there is a risk that exporters will use their available ruble funds for dividend payments instead of selling FX to raise rubles, considering the volatility in oil prices. We project $3.6 bln of FX purchases in the beginning of August, while FX selling should be minimal. Hence, this could be a rough stretch for the ruble, assuming oil holds close to current levels.
> Bottom line. We see USD/RUB trading in a 59.70-59.95 range.