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EM STRATEGY DAILY - 22 June 2018 Summary

Core Content Overview

This document provides a summary of key events and market outlook for Emerging Markets (EM) in the context of global financial strategy, with a focus on interest rate decisions, economic indicators, and upcoming elections in various regions. It is produced by BNP Paribas and outlines the current market conditions and expectations for the remainder of the year.

Key Market Developments

Central Bank Actions

• Mexico: The central bank (Banxico) raised its key interest rate by 25 basis points (bps) to 7.75%, driven by inflation risks and currency depreciation. The board emphasized its willingness to act decisively if needed but did not signal further hikes in the near term.
• Taiwan: The central bank kept its benchmark rate path at 1.375%, for the eighth consecutive quarter. It revised its GDP forecast for 2018 to 2.68% and CPI forecast to 1.4%, citing higher oil prices and a tobacco tax hike as factors behind recent inflation. The central bank expects inflationary pressure to ease in H2 to 1.2% for headline CPI and 1.16% for core CPI.
• Argentina: The Central Bank is expected to raise policy rates by 300 bps to 43% next week, supported by rising yields in its liquidity paper. The country has a USD 50bn IMF financing deal, aiming to bring inflation down to 27% in 2018 and 17% in 2019. Current inflation has increased to 27.2% in May, indicating a challenging path to meet targets.

Political Events

• Turkey: The first round of presidential and parliamentary elections will take place this weekend. Leading indicators suggest a slowdown in economic growth, with the full year growth forecast downgraded to 4.5%. Private consumption and investment are being negatively impacted by currency devaluation, high interest rates, and economic uncertainty.

Regional Outlook

Asia

• Asian equity and FX markets remain broadly unchanged, as the US dollar remains stable.
• The OPEC meeting in Vienna is a key focus this week. A potential pull-back in production cuts could impact oil prices and the FX of oil-exporting countries.
• The biggest oil importers, such as China and India, may benefit from any reduction in oil prices.

CEEMEA

• Turkey is expected to experience a visible slowdown in growth due to the aforementioned factors.
• The central bank of Turkey is under close scrutiny due to the upcoming elections and economic challenges.

Latin America

• Mexico is expected to maintain a restrictive monetary stance due to inflationary pressures and uncertainty around NAFTA re-negotiation and local elections.
• Argentina is under a tight monetary policy due to its inflation targets and the need to stabilize the economy.

Strategy Contacts

Legal Notice

• This document is a marketing communication and is not investment research. It is intended for Professional Clients and Eligible Counterparties.
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• The information and opinions are based on public sources and may not be independently verified.
• BNP Paribas may have conflicts of interest due to its role in investment banking and may engage in transactions inconsistent with the views expressed.
• The indicated prices are non-binding and subject to change. They are based on internal models and may vary significantly from other sources.
• This document is confidential and may not be copied, reproduced, or distributed without prior written consent.
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US Disclosures

• Options: Complex instruments with a high degree of risk, suitable only for sophisticated investors.
• ETFs: May involve tracking error, currency risk, and geopolitical risk. BNPP may have conflicts of interest due to its involvement in ETF activities.
• Unregistered Securities: Certain instruments discussed may be restricted under US securities laws and only available to Qualified Institutional Buyers (QIBs) or non-US persons under Regulation S.

Disclaimer

• The information is for discussion and may be subject to change or discontinuation.
• The outcomes discussed are hypothetical and not indicative of future performance.
• No guarantees are made regarding accuracy, completeness, or reliability of the information.
• BNPP and its affiliates do not accept liability for any loss arising from reliance on this document.

Conclusion

The document highlights the interest rate decisions in Mexico and Argentina, the political developments in Turkey, and the economic outlook for Asia and CEEMEA. It serves as a strategy update and market commentary, with a focus on FX and interest rate trends, and includes legal and regulatory disclosures for compliance purposes.