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EM STRATEGY DAILY - 14 June 2018 Summary

Core Content Overview

This document is a daily strategy update from BNP Paribas Global Markets, focusing on Emerging Markets (EM) and G10 currency movements, as well as regional economic and monetary policy insights. It highlights key economic data, central bank outlooks, and market implications, with a particular emphasis on China, Mexico, and the CEEMEA region.

Key Market Developments

US Dollar and Global Markets

• The US dollar failed to gain sustainable traction after a hawkish FOMC meeting.
• Asian equity markets weakened due to the surprise weakness in Chinese May Industrial Production data and the hawkish tone from the FOMC.
• Asian FX markets are range-bound, with the KRW being 0.5% weaker due to larger equity market losses and dovish MPC minutes.
• The FOMC raised the median dot forecast to 2 more rate hikes this year, in line with the strategy team's expectations.

China

• Chinese industrial production data for May was below expectations, indicating weaker domestic demand.
• Fixed asset investment and retail sales data also suggest a slowdown in economic activity.
• Credit supply has been constrained by last year's deleveraging efforts.
• The bond swap spread has narrowed, making a yield rise less likely to be reflected in swap rates.
• A 5-year CNY NDIRS received position is recommended with a target of 3.4%.

Mexico

• The forecast for the beginning of rate cuts has been pushed out to Q1 2019 from Q4 2018.
• This is due to a riskier second half of the year, which Banxico also acknowledges.
• Despite the delay, the strategy team still expects more than the consensus in terms of rate cuts, totaling around 150bp next year.
• A 25bp rate hike is expected at the 21 June Banxico meeting.

CEEMEA Region

• Final May CPI data for Poland is expected to remain at 1.7% y/y.
• Inflation is expected to hold above the central bank's 2.5% target in H1 2019, driven by wage pressures.
• The NBP is likely to implement monetary tightening in H2 2019, despite the temporary inflation spike.

Market Closures

• Markets in Indonesia are closed for the week.
• Singapore and Malaysia will be closed for Hari Raya tomorrow.

Strategy Team Contacts

Production Team

Legal Notice

• This document is non-independent research and constitutes a marketing communication.
• It is not intended for retail investors and is subject to legal disclaimers.
• BNPP may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• The document may include simulated performance data and is not a prospectus or public offering.
• Information is provided on a confidential basis and may not be copied or distributed without consent.
• The document is subject to various legal regulations in different jurisdictions, including MiFID II and US Securities Laws.

Additional Disclosures

• Options and ETFs discussed are complex and may involve high risk.
• Certain securities may be restricted and only available to Qualified Institutional Buyers (QIBs) or non-US persons.
• The document may be distributed only to specific institutional investors in the US and EU.
• BNPP and its affiliates may have financial interests in the issuers and may act as market makers or advisors.