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Macro and Vol Commentary

The Ruble has weakened this year as inflation has prompted the central bank to hike rates. Will this continue?

Economic Data

  • Russia's manufacturing PMI stood at 49.8 in September. The reading remains contractionary and is the fourth month below 50.
    • The month-on-month rise in September reading resulted from the increase in output and consumer demand as new orders grew.
    • Backlogs are starting to decline, and input prices eased; however, output prices increased again but at a slow pace.
    • The sentiment is upbeat for the next 12 months as firms indicate consumer demand may improve, despite the inflationary and elevated employment environment.
  • The unemployment rate stood at 4.4% as of August 2021, labour productivity and utilisation growth rate were at 3.14%. Real wages are growing, which should boost consumption, but the growth rate has slowed drastically.
    • Real wages stood at 2.2% y/y in July, down from 4.9% the month prior.
  • CPI, where the battleground is, continues to climb. Month-on-month inflation reached 0.6% in September, with the year-on-year figure at 7.4%, and core inflation is higher at 7.6% y/y for the same period.
    • Indeed, the weekly CPI YTD stands at 5.48%.
    • The Ruble has appreciated this year, but still, inflation rises. Food prices are key to higher inflation in Russia, gaining 9.2% y/y in September.
    • Local prices for meat, dairy, selected fruit and vegetables but non-food CPI were higher prices on cars due to a production cut and construction materials.
  • PPI is still high but has fallen marginally. PPI for August was 28.5% y/y and 1.5% y/y. The higher costs are freight, chips, agricultural products, labour, and construction materials.
    • We do not expect much change in PPI in the near term, with cargo shipments growth up 5.9% y/y, down from 9.1% the prior month.
    • Employment costs will remain high as reduced migrations create worker shortages.
  • The government distributed RUB700bn in social support payments for school children, pensioners, and military personnel, representing around 40% of Russia's population.
    • This would have improved consumer spending and inflationary pressure.
    • The stabilisation of PPI is a positive for CPI; however, the external forces at play leave it vulnerable to higher CPI in the coming months.
  • GDP was well supported by consumption. This is expected to remain the case for Q3 2021, which we hope to be at 4.4%, and 3.1% for Q4. This means that GDP could reach 4.2% for the full year.
    • Consumption in Q2 2021 was 13.2% y/y, with an investment growth was 12.8% y/y.
  • There is little growth in the construction sector or the industrial sector outside oil and gas. OPEC+ easing restriction and gas output will boost growth projections in the near term.
  • Russia's trade balance remains in surplus, reaching $16.4bn with exports at $46.5bn. The YTD trade balance is at $1,443.7bn, and we expect this to rise as Russia exports more gas to Europe in the coming months helping with the crisis.

Central Bank

  • The CB accepted 1.12t Rubles at 6.75% for 1day action. On the 7-day auction, the bank accepted 862.9bn Ruble deposits.
  • The CB also bought 6.7bn Rubles of FX to settle on Oct 11th. The Finance Ministry indicated FX purchases would decline in October to RUB318bn.
  • The bank's weekly reserves stand at $614.12bn, excluding gold reserves are $485.46bn.
  • We expect the CBR to increase rates in the coming months, and we expect them to reach 7% by the end of 2022.
  • Revenues from gas exports go into the sovereign fund, and this could mean higher fund availability in 2022.
  • We could see local investments decline as the government increase the required threshold for liquid FX savings to 10% of GDP.

The higher rate environment keeps the Ruble supported, and the higher oil and gas revenues in the near term will support the economy's balance sheet and fundamentals. However, evidence suggests that these funds will not find their way back into the economy. Inflation remains a problem, and consumption has been strong, but this will weaken following the social support payments and declining real wage growth. The dollar is holding firm, and next year's growth in Russia will be slower, which could prompt the Ruble to weaken as the Fed look to tighten monetary policy. We expect further strength from the Ruble in the near term, bucking the EM trend, but the spot needs to break 71.55 to gather steam. We favour selling USDRUB rallies and owning Ruble at this time but would look to switch this position in 2022.

Volatility Commentary

Over the last year, we have seen USDRUB consistently realising lower than implied vols, with RUB recently benefiting from the recently elevated prices in energy/oil/NatGas. As mentioned above we favour owning RUB (i.e. USDRUB down positions). In the short term, we see the potential for the trend of volatility realising lower than implied to continue and, as above suggests, a trade below that will benefit from the USDRUB spot heading lower in the short term (especially if the energy crisis deepens and energy prices head higher).

USDRUB 1-month Realised and Implied Volatility

USDRUB Trade Idea

  • Sell call with 10m USD Notional 72.0 strike and buy call with 5m USD Notional 73.0 strike for circa receive 100k USD
  • Buy EKI put with 7.5m USD Notional with strike 70.5 and barrier 69.5 for circa 53k USD cost
  • Total structure premium receive circa 47k USD

Positioning Charts

USDBRL NDO Positioning Data 28/09/2021 - 05/10/2021

The options market was quieter in the week to October 5th with the range marginally narrower at 5.30-5.70. There are more put options executed than calls and the notional values were also larger. We expect the trend to remain intact in the near term but the options market lacks conviction. 

USDBRL NDO Positioning Data 05/10/2021 - 12/10/2021

USDCNY Vanilla Positioning Data 28/09/2021 - 05/10/2021

The trading range for near dated options for USDCNY trade a narrower range than the previous week, however options due to expire after December 20th have a wide range. The majority of options executed are puts and there is a marginal increase in the downside range to 6.30 out to the end of December 2021. There are little options traded above 6.55 in the near term and this could mean the market covers quickly if the dollar rallies significantly. 

USDCNY Vanilla Positioning Data 05/10/2021 - 12/10/2021

USDRUB Vanilla Positioning Data 12/08/2021 - 12/09/2021

Call options traded in the near term for USDRUB show a limited upside. The range is more clustered than the previous month. The range in the near term is very tight but there is  The market is positioned for more downside in USDRUB but there is no downside through 70 in the near term, we expect this level of support to be robust but the currency trend lower in the near term due to rate hikes and higher gas prices. 

USDRUB Vanilla Positioning Data 12/09/2021 - 12/10/2021

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases



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