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EM STRATEGY DAILY SUMMARY - 07 February 2018

Core Content Overview

This document provides an analysis of emerging market (EM) strategy and market outlook for the day, focusing on key events, currency movements, and trading recommendations. It is produced by BNP Paribas Global Markets Research teams and is intended for professional clients and eligible counterparties. The summary includes insights on South Africa, Brazil, India, and Poland, along with FX and IR strategies for the EM regions.

Key Market Events

• South Africa:

  • The National Economic Conference (NEC) meeting and the State of the Nation Address (SONA) have been postponed due to political tensions surrounding President Zuma's potential recall.
  • The delay may indicate a more consensual and market-friendly exit for Zuma, which could stabilize the local currency and market sentiment.

• Brazil:

  • The Central Bank of Brazil (BCB) is expected to cut the Selic rate by 25 basis points (bps) today.
  • The decision will influence whether a rate cut is also expected in March.
  • Implied probabilities for a March cut have increased after a surprise upward revision in the December inflation data.
  • The yield curve is seen as having an excessive premium, prompting the strategy to maintain a DI Jan20sJan21s FRA receiver trade and open a long USDBRL put spread at 3.25/3.15.

• India:

  • The Reserve Bank of India (RBI) is expected to keep the policy rate unchanged at 6%.
  • The central bank is likely to react to the government's recent fiscal easing, but is unlikely to engage in bond purchases due to concerns over credibility.
  • The strategy continues to forecast two 25bp rate hikes in the second half of 2018, with a bearish trend in interest rates.

• Poland:

  • The Central Bank of Poland is expected to keep the policy rate unchanged at today's meeting.
  • The Monetary Policy Committee remains dovish despite recent growth and inflation revisions.
  • Rates are likely to stay on hold until Q3 2018.

FX Strategy Recommendations

• USDIDR:

  • A short USDIDR position is recommended at current levels.
  • IDR has reached the top of Bank Indonesia's comfortable range and is expected to be capped by the central bank.
  • Commodity price recovery is seen as a positive factor for IDR.

• USDBRL:

  • A long USDBRL put spread is recommended at 3.25/3.15.
  • The strategy is based on the expected rate cuts in Brazil and the current market dynamics.

Market Outlook

• Asian markets experienced a reversal in the selloff after a rebound in US equity indices.
• The focus remains on US equities for directional cues in other markets.
• High beta currencies such as KRW and IDR were underperformers in the recent selloff, reflecting the broader market sentiment.

Supporting Data and Analysis

• The strategy team has used DTCC databases to analyze regional currency positioning, offering insights into market trends and investor behavior.
• Charts are provided to support the analysis:
  • Chart 1: Highlights the opportunity for short USDIDR positions due to commodity price recovery.
  • Chart 2: Shows the expected Selic rate cut in Brazil and the inflation tolerance bands.

Contacts

Legal Notice

• This document is non-independent research and may be subject to conflicts of interest.
• It is intended for professional clients and eligible counterparties and may not be used by non-qualified investors.
• The information is for informational purposes only and not investment advice.
• BNPP disclaims any liability for the use of this document and its content.
• The document may contain simulated performance data and is not a prospectus or public offering.

Disclaimer

• The document may not be reproduced or distributed without prior written consent.
• It is subject to change and may be discontinued at any time.
• BNPP may have conflicts of interest and may engage in transactions inconsistent with the views expressed in this document.
• All information is believed reliable but not guaranteed for accuracy or completeness.
• Transactions are not guaranteed and indicative prices are not actual terms.

United States Disclosures

• Options and ETFs discussed are subject to specific risks and may not be suitable for all investors.
• Certain securities may not be registered under US securities laws and are restricted to Qualified Institutional Buyers (QIBs) or non-US persons.
• The document is a general solicitation of derivatives business and may not be distributed to U.S. persons unless authorized.

Additional Information

• For more details, refer to the referenced reports and charts.
• The document is available through BNP Paribas Global Markets Website and Bloomberg.
• BNPP is a registered broker-dealer and futures commission merchant in the U.S. and subject to various regulatory bodies.