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EM Strategy Daily Summary - 20 March 2018

Core Content

This document provides an overview of emerging markets (EM) strategy and market insights for the day, focusing on key economic data, central bank actions, and currency and interest rate movements across CEEMEA, Asia, and Latin America (Latam) regions. It also includes contact details for EM strategy analysts and legal disclaimers.

Key Market Insights

South Africa

• Inflation: Headline CPI slowed to 4.0% y/y in February from 4.4% y/y in January.
• Implication: Supports the view of a rate cut on March 28.
• Current Account Deficit: Q4 2017 deficit was 2.9% of GDP, which is somewhat disappointing but still below previous year's figures.

Turkey

• CCY Curve Steepening: The 3m-12m TRY CCY rates differential has widened to over 125bp.
• Market Action:
  • Entered a long 1m fwd 3m x 9m TRY CCY flattener at 95bp, targeting 50bp.
  • One-week realised losses in TRY are deeper than 2%, the worst weekly performance since July 2017.
• Expectations: The CBRT is expected to implement alternative measures instead of tightening, which could affect the curve's sustainability.

Colombia

• Rate Cut Expectation: Expected 25bp rate cut today.
• Monetary Policy Bias: Central bank continues with an easing bias despite erratic communication.

Chile

• Rate Decision: Expected to leave rates unchanged at 2.5%.
• Focus: On communication and assessment of future monetary policy risks following the February inflation surprise.

Brazil

• FRA Position: Entered into a payer position in the FRA Jan-19 vs Jan-23.
• USDTRY Call Option: Maintained a USDTRY 3m call option position.
• Market Gap: Gap from market value and fair value estimates has widened, making payer positions attractive.

India

• RBI Policy: Possible increase in foreign investment bond limits from 5% to 6-8% of outstanding government bonds.
• Expectation: Official announcement expected this week or next.
• Rupee Support: If announced, could support the rupee and the bond market.
• Strategy: Continue to favor buying INR via short-dated options.

Argentina

• GDP Forecast: Cut 2018 real GDP growth forecast to 2.6% due to agricultural output disruptions from dry weather.
• Peso Outlook: Remain bearish on ARS due to twin deficits and idiosyncratic risks.

Strategy Positions

• Turkey: Long 1m fwd 3m x 9m TRY CCY flattener at 95bp, targeting 50bp.
• Brazil: Payer position in FRA Jan-19 vs Jan-23.
• Colombia: Expected rate cut of 25bp.
• INR: Continue to favor buying INR via short-dated options.
• ARS: Remain bearish, with no change in position.

Other Recent Publications

• [2 MIN] VIDEO: "US tariffs to put EM on its mettle?"

EM Strategy Contacts

Legal Disclaimer

• This document is non-independent research and may be subject to conflicts of interest.
• It is a marketing communication and not investment research.
• It does not constitute an offer to sell or issue securities.
• No liability is accepted for any use of the information or reliance on it.
• All information is based on public sources and may be subject to change.
• Indicative prices are provided for informational purposes only.
• BNPP may engage in transactions inconsistent with the views expressed.
• The document may contain back-tested performance data and is not a prospectus or public offering.
• Certain securities may be restricted under US Securities Laws and only available to Qualified Institutional Buyers (QIBs) or non-US persons.