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EM STRATEGY DAILY - 02 July 2018 Summary

Core Content Overview

This document provides a summary of key events and market outlook for Emerging Markets (EM) on 02 July 2018, highlighting political developments, economic indicators, and currency movements. It is produced by BNP Paribas Global Markets Research teams and includes contact details for strategists and legal disclaimers.

Main Points and Key Information

Political Developments

• Mexico: Left-wing candidate Andres Manuel Lopez Obrador (AMLO) was elected president. He will take office in December, following a 5-month gap between the election and inauguration.
• Turkey: President Recep Tayyip Erdogan will unveil his new cabinet after taking oath on 8 July, following the release of official election results on 5 July.

Economic Outlook

• CEEMEA Region:
  • Manufacturing PMIs across the region will be in focus today.
  • Turkey: Expected June headline inflation to rise by 1.3% m/m (consensus 1.4%), pushing annual inflation to 13.9% y/y from 12.1% y/y in May.
• Asia:
  • Asian equity and FX markets declined in response to comments from Canada's Prime Minister Justin Trudeau about retaliatory tariffs on US goods.
  • Investors have turned net short on all Asian currencies, including SGD and THB, with increased USD positioning.
  • South Korea: Inflation expected to rise to 1.7% y/y, close to the Bank of Korea's target of 2.0%, prompting a potential 25bps rate hike in 2H18.
  • Philippines: Inflation data to be released on 5 July.
• Brazil:
  • June inflation is expected to rise to 1.33% m/m from 0.40% in May, primarily due to the impact of the truckers' strike on food, fuel, and energy prices.
• Colombia:
  • Non-tradable prices continue to decline, with no signs of a pickup in food prices, though headline inflation is likely to remain near the central bank's target of 3% y/y.

Currency Movements

• MXN (Mexico): The peso weakened by 1% from the market open due to the election outcome.
• SGD and THB: Investors have turned net short on these currencies, with increased USD positioning.

Central Bank Actions

• Bank Indonesia (BI):
  • Hiked the 7-day reverse repo rate by 50bps to 5.25% on Friday.
  • Implemented macro prudential measures, including relaxed loan-to-value ratios for first-time home buyers.
  • Further rate hikes may be necessary in 2H18, but the central bank must balance the risks to growth.

Key Contacts

Legal and Regulatory Information

• The document is non-independent research and may be subject to conflicts of interest.
• It is intended for Professional Clients and Eligible Counterparties under MiFID II.
• It does not constitute investment research and is not subject to any prohibition on dealing ahead.
• The document may contain simulated performance data and is for illustrative purposes only.
• No liability is accepted for any direct or consequential loss arising from reliance on the information.
• The document is for internal use and may not be reproduced or distributed without prior written consent.

Online Resources

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

Disclaimer

• This document is for informational purposes only.
• It is not a prospectus, advertisement, or public offering.
• It does not provide investment, tax, or legal advice.
• BNPP may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• All information is subject to change and may not be accurate or complete.