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EM Strategy Daily Summary - 22 March 2018

Core Content

This document is a daily summary from BNP Paribas' Emerging Markets Strategy team, providing insights and forecasts on current market conditions and central bank decisions affecting Emerging Markets (EM) assets.

Main Points

Global Market Outlook

• FOMC Decision: The Federal Open Market Committee (FOMC) raised the fed funds rate by 25 basis points (bps) as expected, but did not change the dots for this year. The medium-term growth, inflation, and rate hike projections were revised upwards.
• EM Impact: Despite the hawkish tone, the authors believe this does not pose a major issue for EM assets at the current time. Strong economic growth in EM remains supportive of asset performance.
• Asian Markets: Asian FX and equities are trading on a bid tone, while credit markets have seen some weakness that has been pared.

Central Bank Meetings in Asia

• Philippines, Indonesia, and Taiwan: All three central banks are expected to keep policy rates unchanged at their MPC meetings today.
• Statements: The authors expect Bank Indonesia and the Central Bank of Taiwan to deliver dovish statements accompanying their decisions.

Brazil

• Central Bank Decision: The Brazilian Central Bank (BCB) cut policy rates by 25bps to 6.5% yesterday, in line with consensus expectations.
• Future Outlook: The BCB highlighted the possibility of further easing at the next meeting. BNP Paribas revised its end-cycle rate cut call to 6.25%, while still expecting gradual rate hikes in the coming year.

China

• RMB Headwinds: Rate differentials and trade tensions are identified as near-term headwinds for the RMB.
• Market Sentiment: The market appears complacent in pricing in risks for the RMB should USD-China tensions increase.
• Long-term Trend: The authors expect a long-term trend of lower USDCNY due to corporate repatriation, inflows into the local bond market, and USD weakness.
• Cautious Stance: A cautious stance is reiterated on the CNY in the near-term, with readiness to engage in short USDCNY risk.

Key Contacts

Legal and Disclaimer Information

• Non-Independent Research: This document is non-independent research and constitutes a marketing communication.
• No Investment Advice: It does not provide investment, financial, legal, or tax advice.
• Confidentiality: The document is for the use of intended recipients only and must not be distributed without prior written consent.
• Conflicts of Interest: BNP Paribas may have conflicts of interest due to its involvement in investment banking and other services.
• Performance Data: Performance data may include back-testing and is not indicative of future results.
• Regulatory Compliance: The document complies with relevant legal requirements and is subject to various jurisdictional disclosures.

Additional Information

• Online Resources:

  • BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
  • Bloomberg Research:
    • Fixed Income Research: BPFR
    • G10 Interest Rate Research: BPBS
    • Emerging Markets Research: BPFR
    • Market Economics: BPEC

• Important Disclosures:

  • Options: Complex instruments with high risk, only suitable for sophisticated investors.
  • ETFs: May involve tracking error, currency, and geopolitical risks.
  • Restricted Securities: Some securities discussed may not be registered under US Securities Laws and are considered restricted.

Jurisdictional Information

• UK: Document is communicated by BNPP London Branch, authorized by ECB, ACPR, and PRA, subject to limited regulation by FCA.
• France: Produced and/or distributed by BNPP SA and BNPP Arbitrage, authorized by ECB and ACPR.
• Germany: Distributed by BNPP Niederlassung Deutschland, authorized and supervised by ECB and ACPR, subject to limited supervision by BaFin.
• Belgium: BNPP Fortis SA/NV is authorized and supervised by ECB and National Bank of Belgium.
• Ireland: Distributed by BNPP S.A., Dublin Branch, regulated in France.
• Italy: Distributed by BNPP Italian Branch, authorized and supervised by ECB and ACPR, regulated by AMF.
• Netherlands: Distributed by BNPP Fortis SA/NV, Netherlands Branch, regulated in Belgium.