Russia FX Beat - July 7, 2017

> Today's focus. G20 summit, US jobs data, Fed policy report.
> Global trigger: US jobs data. Global equities and sovereign bonds came under heavy pressure yesterday. The S&P 500 led the way, dropping 1%. The rise in sovereign bond yields fit in with the recent theme of building reflationary pressure and several key central banks warning of higher policy rates.
For example, the 10y Bund yield yesterday rose 10 bps to 0.57%, the highest since early 2016. A weak French sovereign bond auction was cited as one catalyst for the move. Today the BoJ conducted a fixed-rate bond purchase operation to pressure JGB yields lower - its first such move since February.
This backdrop sets the scene for what will be a very busy Friday. Leading the way is the June US jobs report at 15:30 Moscow time. Then at 18:00 the Fed releases its Monetary Policy Report. This will set the mood for Chair Yellen's testimony to Congress next week.
Lastly, the G20 summit of world leaders in Germany starts today. It is one of the most hotly anticipated meetings in several years. Trade, terrorism, migration, climate, political meddling, North Korea and Syria will all be in focus.
> Bottom line. Today we have a positive DXY bias toward 96.
> Regional trigger: Putin and Trump talk. The focus for Russia today is the G20 summit. Of all the talks scheduled, the most eagerly awaited is the first meeting between Presidents Putin and Trump. There are many things to discuss, but it is not clear what details will be communicated publicly. Without a scheduled time for the meeting, we do not know when headlines will break.
The big news yesterday was the leap in Russian CPI from 4.1% to 4.4% y-o-y in June, above the consensus of 4.2%. Although appearing a very poor outcome at first glance, our economists consider it a temporary pickup posing little risk to the 4% year-end target. Inflation in food prices was a clear culprit. We calculate that CPI excluding fruits and vegetables rose just 0.3% m-o-m, versus 0.5% a year ago. Quite correctly, and as noted by the CBR's Igor Dmitriev yesterday, the central bank will watch closely to see if this trend proves temporary. It is very much up in the air whether the CBR will cut the key rate on July 28.
> Bottom line. Falling oil prices, as a result of the higher US oil output reported yesterday, is bullish for USD/RUB. This together with demand for dollars ahead of the weekend suggests a test of 60.50 is possible.