We doubt that the sanctions are to be eased early, although a less hawkish tone might bring some comfort for the financial markets, especially in light of RUB touching its new historical low on Friday of 39.1 against the dollar. As far as the rouble is concerned, we are waiting for the 3Q14 BoP to be published next week for clarity on its recent behaviour and, more specifically, the underlying nature of the recent intensification in capital outflow. In our view, RUB is currently oversold and we expect it to come back to 36 by the year-end, should the expectations of our commodity analysts (Brent at USD 105) materialise. If the oil price gets stuck around USD 90-95/bbl for longer, the fundamental equilibrium is likely to switch to 38-39 against the dollar. Therefore, even in an environment of relatively depressed oil quotes, the CBR might want to raise RUB defences (both in terms of interventions and additional rate increases) once the currency starts to flirt with the 40-41 range, as that might trigger another panic wave of savings dollarisation.
Among local events, we await extensive commentary from policymakers at our sixth annual investment forum as well as final details on the 2015-17 budget plan. Media reports suggest that next year will see a turnaround in the fiscal stance (at the federal level) with spending projected to increase more than 10%, but no clarity as of yet as to the main beneficiaries of this fiscal largesse (we suspect, by and large, the defence sector). An extension of the moratorium on pension savings as well as mild tax increases here and there (such as the oil tax manoeuvre and tweaks in medical security duties) helped to delay making the choice between spending cuts and more radical tax increases. This dilemma could well resurface sooner rather than later, especially as the likely shortfall in non-oil revenue collection and borrowing proceeds might push the government tap the Reserve Fund as early as next year, even under a USD 100 oil price assumption.
Over September, the divergence in manufacturing performance between CEE3 and the rest of our CEEMEA universe might have advanced, with Poland, the Czech Republic and Hungary yielding to tentative signs of modest growth in Germany (the Eurozone flash PMI estimate for this month showed some improvement, but elsewhere the Eurozone was brought down by stagnation) and some relief to the Ukraine crisis, while lingering internal rebalancing in Russia and Turkey (read deteriorating local demand) is weighing on production.