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EM STRATEGY DAILY - 16 October 2017 Summary

Core Content

This document is a daily market update from BNP Paribas on Emerging Markets (EM) strategy, covering key economic data releases, central bank meetings, and market outlook for the week of 16 October 2017.

Main Focus Areas

1. Central Bank Policy Outlook

• Chile, South Korea, and Indonesia: No expected changes to policy rates at central bank meetings this week.
• South Africa (SARB):
  • Inflation is expected to rise slightly to 4.9% y/y in September from 4.8% in August.
  • The SARB surprised by not cutting rates in the previous meeting, indicating a more cautious stance.
  • The central bank is likely to cut rates up to 3 times in the current easing cycle.
  • The reason for this caution may be political uncertainty and concerns about credit rating downgrades.
  • If inflation continues to fall within the SARB's target range (3–6%), real rates could rise, supporting the ZAR in the short term.

2. Latin America (Latam) Market Outlook

• Chile (BCCh):
  • Policy meeting on Thursday; rates are expected to remain on hold.
  • The market curve is pricing in 10bps of cuts by February.
  • The 1y-2y CLPxCAM flattener is seen as a good opportunity.
  • USDCLP is trading near fair value models, so the Peso's performance is likely to be driven by external factors.
• Brazil (CBF):
  • Mid-month CPI data is expected on Friday, which should confirm that inflation has bottomed out and is converging towards 3%.
  • This is already reflected in market expectations and will influence the CCB's monetary policy meeting next week.

3. Asia Market Outlook

• China:
  • The 19th National Party Congress begins on Wednesday and lasts a week.
  • Event risk is not expected to be significant; Xi Jinping and Li Keqiang are likely to remain in leadership roles.
  • Economic data including GDP, industrial production, and retail sales will be released on Thursday.
• Indonesia:
  • The central bank (BI) has already cut rates twice this year, but the latest cut was too aggressive.
  • This has narrowed the USD-IDR rate differential to historical tight levels.
  • The central bank is expected to focus on supporting the currency, while keeping policy rates unchanged.
• Malaysia and Singapore:
  • Markets will be closed on Wednesday due to Deepavali and Thursday due to public holidays in India, respectively.

Key Information

• Market Conditions:
  • Markets are relatively quiet at the start of the week, with USDAsia unchanged and equities slightly higher.
• Data Releases:
  • Poland will release current account deficit and production/retail sales data for September.
  • Brazil's CPI data is expected to confirm inflation is on the decline.
• Currency Outlook:
  • The ZAR may benefit from rising real rates if the SARB continues to be cautious.
  • The Peso's performance is expected to be influenced more by external factors than domestic.
• Investment Considerations:
  • The 1y-2y CLPxCAM flattener is viewed as a favorable opportunity.
  • The document serves as a marketing communication and is not investment research.

Strategy Contacts

Legal Notice

• This document is non-independent research and is a marketing communication.
• It is not intended as investment advice and should not be relied upon for making investment decisions.
• BNP Paribas may have conflicts of interest due to its involvement in trading, underwriting, and advisory services.
• The document may contain simulated performance data and is not a prospectus or public offering.
• It is subject to legal restrictions and may not be available to all investors.
• Information is provided on a confidential basis and may not be distributed without prior consent.