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EM STRATEGY | DAILY SUMMARY

Date: 04 June 2018

Core Content Overview

This document provides a summary of the latest developments in emerging markets (EM) strategy, focusing on key economic data, central bank decisions, and market outlooks for the week. It highlights inflation trends, currency movements, and policy implications across various regions, including CEEMEA, Asia, Latin America, and the United States. The report also includes contact details for EM strategy analysts and legal disclosures related to the use and distribution of the document.

Key Market Updates

Asia

• US Dollar Weakness: Asian equity and FX markets were buoyed by broad USD weakness, despite strong US employment data.
• India: The Reserve Bank of India (RBI) is expected to remain on hold this week. However, the stronger-than-expected Q1 GDP growth of 7.7% y/y may reassure the RBI about the economic recovery, potentially leading to rate hikes in H2 2018.
• Indonesia: May inflation came in slower than expected at 3.2% y/y, with core inflation rising slightly to 2.8% y/y.
• China-USA Trade Tensions: Trade talks ended in an impasse, and a statement from Chinese state media warned that any US trade measures could invalidate the negotiated outcomes. Trade tensions will remain a focus this week, with the G7 Summit in Quebec and China’s May trade figures on Friday.
• South Africa: Q1 GDP growth is expected to be poor, with q/q annualised growth slipping into negative territory (-0.5% from +3.1% in Q4 2017). Y/y growth is expected to improve due to base effects, and the report anticipates above-consensus growth of 2.2% in 2018, with a likely slowdown to 1.9% in 2019.

CEEMEA

• Turkey: May inflation came in line with expectations at 12.15% y/y, up from 10.85% in April. The Central Bank of the Republic of Turkey (CBRT) had previously raised rates by 300bp to 16.5% in an emergency meeting on 23 May. Given the data aligns with expectations, there is a risk the CBRT may not tighten policy further this week.
• Hungary: May CPI inflation minutes will be released on 6 June, and the report expects the central bank to address inflationary concerns from oil prices and a weaker zloty.

Latin America (Latam)

• Colombia: Services inflation is expected to show softer pressure compared to 2017, with non-tradable CPI inflation decelerating by around 10bp to 4.5% y/y. However, overall core CPI is expected to rise slightly to 4.0% y/y due to higher gasoline prices.
• Mexico: May CPI is forecast to continue its downward trend, with headline inflation slowing by 15bp from April. Core CPI is expected to decrease by 10bp to 3.6% y/y.
• Chile: May CPI is expected to remain unchanged at 0.3% m/m, with the annual inflation rate returning to slightly above the central bank’s 2–4% tolerance range.
• Brazil: May IPCA (CPI) is expected to accelerate to 0.25% m/m, driven by food, fuel, and energy prices. Annual inflation is forecast to slow temporarily to 2.71% from 2.76%. The report suggests that Brazil’s DI curve is overpriced and recommends increasing the recommendation for DI FRA Jan20sJan21s.

Key Contacts

Legal and Regulatory Information

• Non-Independent Research: This document is non-independent research and may be subject to conflicts of interest with sales and trading.
• Marketing Communication: It is a marketing communication under MiFID II and not investment research.
• Use Restrictions: The document is for information purposes only and should not be used as a basis for investment decisions.
• Confidentiality: The information is provided on a strictly confidential basis and cannot be copied or distributed without prior written consent.
• US Disclosures:
  • Options and ETFs discussed are subject to specific risks and disclosures.
  • Certain securities may not be registered under US law and are restricted to Qualified Institutional Buyers (QIBs) or non-US persons.
  • The document may be distributed only to major U.S. institutional investors or as a general solicitation for derivatives business.

Conclusion

The report outlines the current state of EM markets, emphasizing the impact of trade tensions, inflation data, and central bank policies. It highlights the potential for policy shifts in key economies and provides investment recommendations based on market expectations and data analysis. Legal and regulatory information is also included to clarify the nature and use of the document.