Russia FX/Rates Snapshot - June 22, 2018

> Today's focus. OPEC+ decision.> FX: OPEC+ preliminarily agrees to 1 mln bpd output hike. Yesterday, risk sentiment continued deteriorating amid signs that the US-China trade war is weighing on the global economy. The Philadelphia Fed business confidence index unexpectedly fell to an 18-month low, while Daimler cut its earnings forecast, as tariffs on cars exported from the US to China may hit its sales. As a result, equities fell, as did the dollar.Today, investors are awaiting US PMI, as it may shed more light on whether the US economy has actually started losing momentum.On the back of dollar weakness, EM currencies mildly firmed yesterday and have continued advancing this morning. Against this backdrop, the ruble was flat, but has gained 0.7% this morning, as exporters continue to sell FX in higher volumes to pay the R590 bln due in MET payments on Monday.The ruble is also being supported by higher oil, which has gained $1.3/bbl today. It was reported that the OPEC+ countries have preliminarily agreed to raise oil output by 1 mln bpd. Given that only a few of them have the capacity to do this, the actual increase would be smaller, at about 0.6 mln bpd, which is close to market expectations and thus positive for prices. The OPEC and OPEC+ decision will be announced this evening and on Saturday, respectively. We think that Russia may end up increasing oil production by 0.3 mln bpd (the amount it had to cut under the 2016 OPEC+ agreement). That will result in almost $8 bln of additional inflow to the Russian economy in 2019, which will not be offset by Finance Ministry FX purchases and thus should support the ruble in the medium term.> Bottom line. USD/RUB is heading toward 63 on the back of the weaker dollar and elevated FX sales by exporters.> Rates: Markets moved in line with the ruble yesterday. OFZ yields opened 2-5 bps wider yesterday amid ruble weakness before closing tighter by the same magnitude. Volumes were up significantly. It seems that foreigners started to buy OFZs, although there was flow in both directions.The IRS and XCCY curves dropped another 5 bps. The latter was supported by a drop in the O/N FX swap rate, which was trading 5-10 bps lower. It appears that FX liquidity should be more or less stable in the coming weeks before falling in July due to Eurobond redemptions.Overnight, Mexico's central bank hiked its policy rate by 25 bps to 7.75%, citing rising inflation, while its counterpart in Brazil left its rate unchanged a day before. The country has seen 50 bps worth of rate cuts so far this year. The Mexican and Brazilian rates markets are peers for Russia; therefore, a hawkish stance from them makes it more difficult for the CBR to cut rates. Turkey will hold its presidential election over the weekend, which might cause volatility in local markets.> Bottom line. Risk-on sentiment in global markets will help to push Russian rates lower today.