RUB Revels in Softer US Sanctions over Navalny - Outlook Picks Up

US SANCTIONS ANALYSIS

• US fell short of imposing meaningful sanctions on Russia, mimicking EU measures on Kremlin officials, albeit targeting a few more (10 vs 4).
• This saw a substantial reversal in USD/RUB and repricing in sanctions risk premia embedded in the Rouble, predicated mostly on uncertainty over a harsher response from the US - possibly targeting OFZs.
• Similar to EU sanctions headlines, this offered an excellent opportunity to fade this morning's rally down to dynamic resistance in line with the uptrend drawn off the 15 Feb low.
• Although the Navalny issue is not yet over, EU/US sanctions were the primary obstacles keeping RUB relatively more undervalued than its EM peers.
• US actions were expected to carry more weight, given Biden's hawkish rhetoric on Russia - but have failed to shift the narrative.
• The Navalny issue will likely have a diminished marginal impact on the cross going forward, provided the US doesn't conduct a major revision of its stance.
• ECHR calls for his release etc have seen little effect and Amnesty International's removal of his 'prisoner of conscience status' have damaged the process somewhat. Although protests are still ongoing, they will likely fade with time as the narrative moves out of the view of the market.
• As we've been highlighting, this places RUB in a strong position to outperform in a normalisation in US real yield upside/volatility. OPEC+ supply hikes will need to be negotiated, but the RUB remains undervalued at current levels. Key USD/RUB bear trigger remains at 72.6566, and require a positive shift in EM risk sentiment to break.
• Peaking inflation in the next few months should be a net positive for bond markets, with the CBR seen on hold for the remainder of the year - reinforcing more attractive real yields and carry potential in RUB assets.