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EM STRATEGY DAILY SUMMARY - 02 November 2017

Core Content

This document is a daily strategy update from BNP Paribas, focusing on Emerging Markets (EM) and CEEMEA (Central and Eastern Europe, the Middle East, and Eastern Europe) regions. It provides market insights, economic forecasts, and updates on key events and financial instruments.

Main Points and Key Information

Czech Republic

• Expected Policy Move: The Czech National Bank (CNB) is anticipated to raise policy rates by 25 basis points (bps) at its meeting.
• Inflation Forecasts: The report highlights the importance of the CNB's inflation and interest rate forecasts. The rate forecast is expected to have been raised since the last report, though not necessarily above current market expectations.
• FX Forecast: Some MPC members have suggested the inclusion of an FX forecast in the upcoming report, but its availability remains uncertain.

Bahrain

• Currency Concerns: FX forwards have spiked due to heightened concerns about a potential de-peg of the Bahraini Dinar (BHD).
• High Debt Levels: Bahrain's gross debt-to-GDP ratio is very high, exceeding 90%, making it the weakest link in the region.
• Financial Support: There are expectations of financial support from Gulf allies, particularly Saudi Arabia, in return for fiscal reforms from Bahrain. This support is anticipated to alleviate currency and credit risks.

Turkey

• Inflation Report: The Central Bank of the Republic of Turkey (CBRT) updated its inflation forecast to 9.8% for the end of 2017, up from 8.7% in the previous report.
• Impact of TRY Selloff: The recent selloff in the Turkish Lira (TRY) is expected to add at least 1 percentage point (pp) to headline inflation in the coming months.
• End-2018 Forecast: The end-2018 inflation forecast was revised to 7.0%, aligning with the Medium Term Programme (MTP), which is significantly below BNP Paribas's long-held forecast of 8.8%.

Market Overview

• Asian Markets: Mixed performance with currencies generally stronger and equities slightly weaker.
• FOMC Meeting: No major surprises were expected from the FOMC meeting, with market expectations of a December rate hike still intact.
• US Political Developments: President Trump's announcement of the next Fed Chair and possible tax reform details are highlighted as important for market sentiment. If Jerome Powell is appointed, it signals continuity with previous Fed policies.

Other Recent Publications

• Argentina: A report titled "Argentina: Taxing Times" is mentioned, likely discussing the country's fiscal and economic challenges.

Strategy Contacts

Legal Notice

• Non-Independent Research: The document is non-independent research and may be subject to conflicts of interest due to its interaction with sales and trading.
• Marketing Communication: It is considered a marketing communication under MiFID and not investment research.
• Confidentiality: The document is for information purposes only and must not be distributed without prior written consent.
• Disclaimer: BNP Paribas disclaims all liability for the accuracy or completeness of the information, opinions, and models used in the document.
• Regulatory Compliance: The document is subject to various regulatory disclosures, including those for the United States, UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, and Spain.

Additional Disclosures

• Options and ETFs: The document includes important disclosures regarding the risks associated with options and ETFs, highlighting the potential for conflicts of interest.
• Restricted Securities: Certain securities discussed may not be registered under US securities laws and are considered restricted.
• Market Participation: BNP Paribas may participate in the market for the instruments discussed, including acting as a market maker or advisor, which could result in potential conflicts of interest.

Summary of Key Events

• Czech Republic: Expected 25bp rate hike, with focus on inflation and FX forecasts.
• Bahrain: High debt levels and FX de-peg concerns, with expected financial support from Gulf allies.
• Turkey: Revised inflation forecasts, with potential for higher inflation due to TRY selloff.
• US Market: FOMC meeting had no surprises, with focus on Trump's announcement of Fed Chair and tax reform.
• Legal and Compliance: Document is non-independent, subject to legal and regulatory disclosures, and not investment advice.

Conclusion

The summary provides an overview of key developments in the EM and CEEMEA regions, focusing on central bank actions, currency movements, inflation forecasts, and market expectations. It also includes legal and compliance information necessary for understanding the context and limitations of the report.