20180305-法国巴黎银行-EM_TODAY_10页_271kb

EM STRATEGY DAILY SUMMARY - 05 March 2018

Core Content

This document provides an analysis of Emerging Markets (EM) strategy and market outlook as of 05 March 2018, with a focus on FX, credit, and inflation trends across key regions including CEEMEA, Asia, and Latin America. It also includes contact details for the EM strategy team and legal disclosures.

Main Regions and Key Points

CEEMEA

• Turkey:

  • February CPI inflation was reported at 10.26%, slightly lower than January but still above market expectations.
  • Core inflation eased to just under 12%, indicating some moderation in price pressures.
  • FX markets show resilience, with 1-week and 1-month realised forward returns close to zero in long TRY positions.
  • The USDTRY is expected to test 3.85 levels due to the negative inflation surprise.
  • The Central Bank of Turkey (CBRT) is likely to maintain rates at 12.75% at its policy meeting on 7 March, pending more significant inflation improvement.

• Poland:

  • The National Bank of Poland (NBP) is expected to maintain its policy rate unchanged at least until Q4 2018.
  • By end-2019, headline and core inflation are projected to be above the target of 3%.
  • The policy bias is expected to become more hawkish during the year.

• Czech Republic, Hungary, Russia:

  • CPI data will be released on 9 March (Czech Republic), 7 March (Hungary), and 7 March (Russia).
  • The Czech Republic's CPI could influence the EURCZK outlook, especially if there is a deviation from market expectations.
  • In Russia, CPI remains below target, suggesting a need for accelerated rate cuts.

Asia

• Malaysia:

  • Central Bank meeting on 7 March is expected to result in no further tightening, as it recently raised rates by 25bp.
  • Market is pricing in a likely 25bp cut at the next meeting.

• South Korea:

  • Inflation, reserves, and current account data will be released on 6 March.
  • Recent data shows a downtrend, limiting the risk of further tightening.

• Philippines:

  • BSP has not tightened despite inflation forecasts above the target range of 2-4%.
  • It has instead loosened monetary conditions by cutting the reserve ratio from 20% to 19%.
  • The PHP is depreciating, but the central bank appears comfortable with this.

• China:

  • Trade balance data will be released on 12 March, with CPI and PPI on 9 March.
  • The 19th National Party Congress set a fiscal deficit target of 2.6%, below the previous 3%.
  • The central bank governor successor and the role of anti-corruption tsar Wang Qi Shan will be key topics on 19 March.

Latin America (Latam)

• Brazil:

  • February IPCA is expected to remain below 3% y/y.
  • The market is pricing in a likely 25bp cut at the next monetary policy meeting.
  • The DI curve's belly carries a substantial premium; recommendation to receive FRA Jan20sJan21s remains.

• Mexico:

  • Biweekly inflation data on 12 March will be in focus.
  • The market is pricing in a lower probability of further rate hikes.
  • The long-end of the TIIE curve has a substantial premium, especially after adjusting for Mexico's credit rating.
  • USDMXN is trading close to fair value, and the peso is expected to follow the broader EM FX trend.

• Argentina:

  • Private USD deposits have remained flat since the beginning of the year, while ARS deposits are growing below inflation.
  • Credit continues to outpace deposits.
  • The Lebac curve remains inverted, with outstanding stock at around USD 60.5bn.
  • The government has issued a significant portion of the supply expected for the year, but conventional financing sources are drying up.

Key Views and Recommendations

• Risk Premia:

  • The risk premium model suggests it might be time to take risk back.
  • Market prices have historically rebounded when the model reaches threshold levels.

• FX Strategy:

  • For Turkey, recommend paying 1y1y TRY cross-currency rates.
  • For Mexico, recommend receiving FRA Jan20sJan21s due to the substantial premium on the long-end of the TIIE curve.
  • For Brazil, the recommendation to receive FRA Jan20sJan21s remains valid.

• Market Outlook:

  • EM equities are under pressure due to concerns over US tariffs.
  • FX and credit markets have shown resilience.
  • The broader EM FX trend is expected to influence peso performance.

Strategy Contacts

Legal Disclaimer

• This document is a marketing communication and not independent research.
• It is not investment research for the purposes of MiFID II.
• The information and opinions are based on public sources and may not be independently verified.
• BNPP may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• No liability is accepted for any loss arising from the use of this document.
• The document does not constitute an offer to sell or purchase any financial instruments.
• It may contain simulated performance data, which is not indicative of future results.
• The information is provided on a confidential basis and must not be distributed without prior consent.