Russia FX Beat - June 30, 2017

> Today's focus. Inflation data from the Eurozone and US.
> Global trigger: Hawkish tilt. Markets have been unnerved this week by hawkish comments from the governors of the ECB, BoE and BoC - central banks that have maintained ultra-loose policy for years. As a consequence, yields have climbed sharply in recent days and equities have fallen. The benchmark Euro Stoxx 50 index fell 1.8% yesterday, its biggest decline since September. The S&P 500 fell by a more modest 0.9%, supported by outperformance from energy sector stocks (see below).
Today, investors face a relatively busy day for data, with inflation the main focus. US PCE core inflation (15:30 Moscow time) is seen edging lower to just 1.4% y-o-y from 1.5%. This would not help skeptical market pricing on whether the Fed will raise rates again this year. Meanwhile, Eurozone CPI (12:00) is subject to downside risk, following weak German and French data over the last 24 hours. If the Eurozone core CPI holds below 1%, the euro could correct lower.
> Bottom line. We expect EUR/USD to correct below 1.14 today.
> Regional trigger: Steady ruble. The ruble is trading in a stable way amid decent market turnover and healthy two-way flow. In recent days, USD/RUB has ignored much of the volatility emanating from oil prices to hold in a 58.80-59.80 range.
Overnight, the US Senate tweaked its sanctions bill on Russia to address apparent concerns from the lower house. Pressure is now on for the House to pass a vote on the bill and move it to the president for approval. Whether it is passed into law will be an important theme in July, although we note that this will not happen next week, as Congress is shut for the US Independence Day recess. This also means that the bill will not be passed by the time Presidents Putin and Trump meet at the G20 summit in one week's time.
Elsewhere, we make a couple of interesting observations. First, US energy stocks outperformed yesterday, as Trump talked up the nation's "near limitless supplies of energy" and plan for "American energy dominance." OPEC take note.
Second, we note a decision in Brazil to cut the central bank's inflation target from 4.5% to 4.25% in 2019 and 4% in 2020. This is a reflection of inflation expectations becoming anchored and the rising credibility of the central bank. We think this framework is something the CBR should consider adopting at some point over the longer term.
> Bottom line. USD/RUB to edge toward 59.50 today.