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EM STRATEGY DAILY - 25 June 2018 Summary

Core Content

This document provides an overview of emerging markets (EM) strategy and market developments for the week of 25 June 2018. It includes insights on key economic events, central bank decisions, and market reactions in various regions.

Key Market Developments

US-China Trade Tensions

• The US Treasury Department is expected to release a report on 29 June that increases scrutiny on Chinese investments in the US, particularly in the technology sector (new-energy vehicles, robotics, aerospace).
• This is likely to impact EM markets, especially in Asia, where trade tensions are seen as a risk factor.

China's Central Bank (PBoC)

• The PBoC cut the Reserve Ratio Requirement (RRR) by 50bps, effective 5 July 2018, releasing an estimated CNY 700 billion.
• The RRR cut had limited impact on the CCS curve, suggesting strong demand across the curve.
• The firm has taken profit on its receive USDCNH CCS 1y1y trade and may re-enter it in the future.

Turkey's Presidential Election

• President Erdogan won the first round of the presidential election with a majority.
• The Republic alliance (AKP/MHP) secured 343 out of 600 parliamentary seats.
• The firm maintains that the structural economic backdrop in Turkey is not supportive of currency appreciation.
• The next step is the formation of the government and ministries, with Erdogan likely to appoint up to 4 vice presidents and 16 ministers.

Central Bank Meetings in Emerging Markets

• Indonesia: The central bank (BI) will hold a policy meeting on 27 June. The firm expects a rate hike to prevent IDR depreciation.
• Czech Republic: The Czech National Bank (CNB) will hold its monetary policy meeting on 27 June. A rate hike from 0.75% is expected, with a full hike possibly in August.
• Argentina: The central bank (BCRA) is expected to hike the policy rate by 300bps to 43%. Inflation targets from the IMF agreement require a restrictive monetary policy.
• Colombia: The central bank (BanRep) will hold a policy meeting on 29 June. The firm expects a halt to the easing cycle due to positive growth surprises. The COP is seen as the most divergent currency from the firm's fair-value FX model.

Key Events and Expectations

• China's PMI Figures: Due on Saturday, 7 July 2018, indicating signs of slowing economic growth.
• South Korea's Industrial Production: Due on Friday, 29 June 2018, which could provide additional insights into regional economic performance.

Strategy Contacts

Legal and Regulatory Information

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Disclaimer

• This document is for information purposes only and does not provide investment, financial, legal, or tax advice.
• It is not a prospectus, advertisement, or public offering.
• Past performance is not indicative of future results.
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