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EM STRATEGY DAILY SUMMARY - 19 March 2018

Core Content Overview

This document provides a summary of key events and market outlook for Emerging Markets (EM) in the week of 19 March 2018, focusing on central bank meetings, trade tensions, and economic indicators across various regions.

Global Highlights

• Fed Rate Hike Expectations: The U.S. Federal Reserve is expected to hike rates by 25 basis points on Wednesday. The rate dots suggest a median of four hikes in 2018 and three in 2019.
• Trade Issues: US-China trade tensions remain a focus. Despite these concerns, EM capital inflows remain positive, and US Libor rates have risen.
• Central Bank Meetings: Central banks in Russia, Brazil, Chile, Colombia, Philippines, Taiwan, and Indonesia are set to meet this week.
• PBOC Governor Nomination: Yi Gang has been nominated as the next PBOC Governor. His leadership is expected to promote financial market liberalization, indicating policy continuity.
• UK-Russia Tensions: Ongoing geopolitical tensions between Russia and the UK are expected to remain in focus.
• Moody's Rating Decision: Moody's will make a rating decision on South Africa's sovereign rating, currently Baa3. A downgrade is unlikely, but concerns over populist rhetoric and institutional capacity remain.

Asia

China

• National Party Congress: Concludes on 19 March.
• PBOC Governor: Yi Gang's nomination is expected to be approved by the NPC.
• FX Market: Increased liberalization in foreign exchange and capital markets is anticipated.
• Philippines, Taiwan, Indonesia: All three central banks are expected to announce unchanged policy rates on 22 March. Taiwan and Indonesia may lean more dovish, while Bank Indonesia may restrain its dovish stance to avoid further rupiah depreciation.
• Philippines CPI: Expected to maintain an upward trend for USD/PHP, reaching 55 by year-end.
• Singapore CPI: Will be in focus ahead of the April monetary policy meeting.

CEEMEA

• Russia Presidential Election: Vladimir Putin was re-elected, extending his term for 6 years.
• CBR Rate Cut: Expected to cut rates by 25bp on 23 March, bringing the rate to 7.5%. Headline inflation remains below target, suggesting more rate cuts in the coming months, which may hinder RUB appreciation.
• South Africa Inflation: Expected to slow to 4.1% y/y in February, from 4.4% in January, with core CPI also remaining below the SARB's target.
• South Africa Current Account: Forecast to narrow to 2.0% of GDP in Q4 2017.
• Moody's Outlook: If South Africa avoids a downgrade, it could confirm positive momentum in currency and bond markets. However, the agency is likely to express concerns over populist policies and debt metrics.

Latin America (Latam)

• Brazil: BCB is expected to cut the Selic rate to 6.5% on 21 March. The DI curve has been adjusted to reflect a higher probability of a cut. The SARB may remain on hold for a substantial period, offering further reduction in DIs risk premium. DIFRA Jan-20/Jan-21 target is extended to 9.5%.
• Chile: Central bank is expected to remain on hold on 20 March.
• Colombia: BanRep is expected to cut rates to 4.25% due to moderated CPI.
• Mexico: Bi-weekly CPI will remain a key focus, with potential repricing of the monetary policy path.

Key Contacts

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Online Resources

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