Russia FX Beat - November 17, 2017

> Today's focus. US House passes tax bill, Draghi speaks.
> Global trigger: US tax reform passes hurdle. Sentiment improved yesterday, with equity markets rising and several higher-yielding EM currencies gaining around 1%.
Overnight, the US House passed legislation on tax reform that would cut the corporate tax rate but add $1.4 trln to the deficit over a ten-year period. For reformers, this is no doubt a positive step. However, the passage of a Senate bill is more challenging, as greater fiscal discipline is required. The Senate is looking to delay corporate tax cuts by a year in its bill. If both bills pass, they will need to be "reconciled." Achieving this by year end would be an achievement. We see the passage of tax reform as the main upside risk for the dollar for the rest of the year.
Overnight, Fed member John Williams said that a hike next month and three further increases in 2018 was a "reasonable guess" - Williams becomes a voter next year. Today is a relatively quiet day for data, with the US reporting housing starts for October at 16:30 Moscow time. The main event is in Europe, where ECB President Draghi gives a speech at 11:30.
> Bottom line. It should be a quiet trading day ahead, with EUR/USD staying near 1.18 unless Draghi delivers a surprise.
> Regional trigger: Guiding for a 25 bp cut. In an address yesterday, CBR Governor Nabiullina outlined an expectation that CPI will end the year at 2.5-2.7% and reiterated that it will return to 4% in 2018. She repeated the rhetoric of her colleagues, saying that the current low level of CPI did not constitute a "deviation from the target" and therefore did not require a monetary policy response.
Nabiullina said that low inflation had been caused by the prior strength of the ruble and a record grain harvest, but that the CBR was focused on long-term price stability and reducing volatility. Although the CBR might say that it is considering either a 25 or 50 bp cut on December 15, we see Nabiullina's comments as consistent with our long-held view for a 25 bp cut to 8%.
Also noteworthy yesterday was data that foreigners increased their share of OFZ ownership to a record 33.2% in September. This comes as a slight surprise given the seeming trading flow at the time. It also leaves OFZs and the ruble rather more vulnerable to an abrupt deterioration in sentiment.
> Bottom line. The 59.40-59.45 area offers support for USD/RUB. A calmer global backdrop may see a test of this.