Russia FX Beat - October 19, 2017

> Today's focus. Catalonia back in focus. US Senate tax vote.
> Global trigger: Catalonia risk. Spain is set to be back in focus today, with Catalan President Carles Puigdemont reportedly to tell Spanish PM Rajoy that he will declare independence if the latter opts to suspend the region's autonomy. For now, there is an absence of any significant pressure on Spanish financial markets, while the EUR is pushing higher.
Overnight, the Fed released its Beige Book report, in which it remarked that although there is "widespread labor tightness" in the US, wage pressure is only "modest to moderate."
On the data front, China today reported 3Q GDP of 6.8% y-o-y, down slightly from 6.9% in 2Q. Yet, for all of 2017, growth is set to beat the government's 6.5% target.
Important overnight will be a US Senate vote on a budget resolution that needs to be passed to keep alive hopes of tax reform this year. US Treasury Secretary Steven Mnuchin warned yesterday that US equities will fall a "significant amount" if tax reform is not passed.
> Bottom line. A successful Senate vote would help the dollar.
> Regional trigger: Flat CPI again. Weekly CPI data showed inflation flat for a sixth straight week, and in fact we have not seen a positive w-o-w reading since mid-July. The latest data, for the week ending October 16, did show fruit and vegetable prices up by 1.5%. There is a good chance the y-o-y rate could dip below 3% for the month of October.
October inflation will be released only after next week's CBR decision. Given that policymakers have highlighted that food prices are edging higher, we think the CBR will opt for a smaller 25 bp rate cut in exactly a week from now.
Yesterday the CBR registered its second and third coupon bond issues, each of R500 bln. The second issue, with maturity of 3m, will be placed on October 24, while the date of the third issue (maturing mid-February 2018) is yet to be determined but is likely to be in mid-November. The placement of the first coupon bond issue in August (R150 bln for 3m) was successful, with demand also coming from banks that usually do not place liquidity through the CBR's weekly deposit auctions. If the second auction is successful, which is likely given that short-term interest rates are relatively low, this could facilitate a liquidity redistribution on the money market. As a result, O/N rates could move closer to the CBR's key rate.
> Bottom line. USD/RUB is range-bound with support at 57.15.