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Emerging Markets Strategy Daily Summary - 11 July 2018

Core Content Overview

This document provides a summary of the Emerging Markets (EM) strategy for 11 July 2018, highlighting key developments in trade tensions, central bank decisions, and market outlook across various regions. It also includes contact information for strategists and legal disclaimers regarding the nature of the research and potential conflicts of interest.

Key Market Developments

Trade Tensions

• The US Treasury is considering additional tariffs on USD 200bn of Chinese imports, taxed at 10%, following the implementation of 25% tariffs on USD 50bn of Chinese goods.
• China's Ministry of Commerce has reiterated that it will take countermeasures against these tariffs.
• Asian equity and FX markets declined due to increased trade concerns.

FX and Interest Rate Outlook

Asia

• Malaysia: The central bank is expected to keep rates on hold. The new governor, Nor Shamsiah Mohd Yunus, is seen as more dovish. Inflation is expected to remain within the 2-3% target.
• Brazil: The strategy team is turning more positive on BRL assets and has extended the target for their Brazil FRA Jan22s23s receiver position. They have also reduced allocation in the USDBRL black swan hedging strategy.
• Czech Republic: June CPI inflation rose to 2.6% y/y, up from 2.2% in May. This may prompt the Czech National Bank (CNB) to consider another rate hike in Q4 2018.
• Poland: The National Bank of Poland (NBP) is expected to keep rates on hold. Weak CPI prints are attributed to zloty strength in 2017, and the central bank is likely to look through near-term pressures for tightening in H2 2019.

Turkey

• The current account deficit increased to USD 5.9bn in June, higher than the expected USD 5.3bn. The deficit may have peaked in May, but could remain elevated due to rising energy costs.

Strategy Adjustments

• Brazil: Extended target for Brazil FRA Jan22s23s receiver position. Reduced allocation in USDBRL black swan hedging strategy due to increased confidence in BRL assets.
• Asia: Continue to favor buying USDSGD via 3m outrights at current levels as a hedge for weaker FX.

Strategy Contacts

Legal Notice and Disclaimer

• This document is non-independent research and may be subject to conflicts of interest.
• It is intended for Professional Clients and Eligible Counterparties under MiFID II.
• The information is for informational purposes only and does not constitute investment advice.
• No liability is accepted for any losses arising from reliance on the document.
• The content may include "Research" under MiFID II unbundling rules, available only to those who have signed up for BNP Paribas Global Markets Research packages.
• The document may include simulated performance data and indicative prices based on internal models.
• BNPP may have financial interests in the securities mentioned and may engage in transactions inconsistent with the views expressed.
• It is not a prospectus or public offering and does not provide tax, legal, or investment advice.

Additional Disclosures

• Options: Complex instruments not suitable for all investors. Risk disclosure documents must be obtained before accessing related research.
• ETFs: May involve tracking error, currency, and geopolitical risks. BNPP may have conflicts of interest due to advisory or transactional roles.
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• UK: Document is communicated by BNP Paribas London Branch, authorized by ECB, ACPR, and Prudential Regulation Authority.
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Contact for Further Information

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• Bloomberg Research: BPFR, BPEC, BPBS