Russia FX Beat - July 3, 2017

> Today's focus. A slow burn in the week ahead. ISM today.
> Global trigger: G20 lead-up. This week will start slowly, gaining momentum as it progresses. The US closes early today ahead of Independence Day tomorrow, for which markets will be shut.
Looking further ahead, Friday will be key. The US will release its June labor report, within which investors will again look for evidence that a tightening jobs market is feeding into higher wages. Friday also sees the start of a two-day meeting of G20 leaders in Germany, for which German Chancellor Merkel has forecast that talks "will be very difficult." Without doubt, the stance and remarks made by President Trump will be front and center, and probably controversial.
More generally, the main market theme is higher sovereign yields, as there have been hints from several key central banks that reflationary forces are gaining traction. The 10y UST yield rose less dramatically last week than Eurozone equivalents, leading to a roughly 10 bp narrowing of the US-EZ spread. This in turn provided strong support for EUR/USD, helping it to 1.14.
> Bottom line. A quiet start to the week is likely, with the US ISM manufacturing index due today at 17:00 Moscow time. EUR/USD should hold near 1.14.
> Regional trigger: Floods and rigs. Global politics will be a key local driver this week. Tomorrow Chinese President Xi Jinping visits Moscow, and on Friday the eyes and ears of the world will be on a meeting between Presidents Putin and Trump. While the outcome of this is uncertain, what is clear is that the US will not have passed a bill with new sanctions on Russia by this time, as Congress is closed this week.
The ruble is likely to be strong at the start of the week, driven by a probable eighth straight daily rise in oil prices. Today's positive momentum is being driven by data late Friday showing that US shale drillers reduced the number of active oil rigs for the first time since January.
Meanwhile, a strange spring weather period has extended into the summer, with widespread flooding reported this weekend across Russia. This plays into the narrative of an unfavorable food price inflation trend. The CBR is very watchful of this.
> Bottom line. Recovering oil prices point toward USD/RUB heading toward the 58.60 area today. Leaning against this momentum might be the ongoing conversion into FX of dividends received last week by shareholders of Sberbank.