Russia FX Beat - September 12, 2017

> Today's focus. North Korea sanctions as S&P 500 hits new high.
> Global trigger: New sanctions on North Korea. Overnight the UN Security Council approved a new set of sanctions on North Korea. The measures agreed (which include reducing imports of petroleum products and a ban of textile exports) were less than what the US had pushed for. It remains to be seen whether North Korea will respond militarily, as it had threatened to do. To us, this warrants a cautious investment stance over the coming days.
Despite this geopolitical risk, global equity markets are rising, with the Japanese market up over 1% today and the US S&P 500 at a new record high.
Elsewhere, the sudden re-weakening of the Chinese yuan this week is in focus. A drop in USD/CNY below 6.50 looks to have been the trigger for the PBoC today having raised the USD/CNY daily fixing by 0.4%, the largest increase since January. Chinese regulators also loosened measures overnight that had made it more expensive to trade in favor of yuan losses. These moves suggest that China no longer fears an uncontrolled yuan descent.
> Bottom line. Today is a quiet day ahead for scheduled news flow. The US sees NFIB confidence at 13:00 Moscow time. EUR/USD is likely to hold in a 1.1940-1.2000 range.
> Regional trigger: Ruble stabilizes. It was a quiet day in Russia yesterday, as investors await Friday's event risks (CBR rate decision and S&P rating review of Russia). Today, we have published our CBR Preview ("50 bp Cut an Exception, Not the Norm"), in which we outline why we believe a 50 bp cut to 8.50% is forthcoming on Friday.
More interesting, we believe, might be a CBR desire to convey a relatively hawkish message. In this case, the main reaction on Friday could be for implied rates to be pushed back higher, as investors re-evaluate the scope for future cuts.
Brent prices stabilized late yesterday after falling to as low as $53/bbl intraday. Several oil-producing OPEC countries met yesterday and agreed that the group may well look to extend the current output cuts that are due to expire at the end of 1Q18. Recall that the OPEC-led deal entails reducing output by 1.8 mln bpd to help stabilize oil markets.
> Bottom line. USD/RUB is stable and absent fresh exporter sales on FX, it will struggle to break 57 today.