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EM STRATEGY DAILY Summary - 28 June 2018

Core Content Overview

This document provides a summary of emerging market (EM) strategy insights and market developments for the week of 28 June 2018, focusing on monetary policy decisions, currency trends, and market outlooks in key regions such as Asia, CEEMEA, and Latin America.

Key Market Updates

Asia

• Bank Indonesia is set to hold its monetary policy meeting on Friday, 29 June, delayed by a national holiday.
• The central bank is expected to hike interest rates to counter the depreciation of the IDR in the context of rising trade tensions and EM weakness.
• Governor Perry Warjiyo emphasized that BI is prepared to implement pre-emptive and front-loading policies.

CEEMEA

• The Czech National Bank (CNB) raised the policy rate by 25 basis points to 1%, which was unexpected and contrary to market expectations.
• Post-meeting rhetoric was neutral, with the CNB not committing to further tightening but highlighting uncertainties from abroad.
• The kourna (CZK) strengthened briefly after the rate hike but remained broadly unchanged on Wednesday.
• The EURCZK is expected to remain above forecast levels, but the kourna's depreciation trend is likely to continue due to global tightening and deteriorating risk sentiment.
• Poland's NBP will release minutes from its meeting on 6 June, and its inaction on FX depreciation has led to underperformance relative to the Czech kourna.

Latin America

• Argentina: The strategy team remains skeptical of local assets. A change in FX outflow trends is required before reassessing the outlook.
• Brazilian Real (BRL): Remains the most structurally appreciable currency in the region based on the FEER model update.
• Chilean Peso (CLP) and Mexican Peso (MXN) are undervalued, with the FEER model adjusting further downward.
• Colombian Peso (COP) is in line with market values, reflecting improving terms of trade.

Key Views and Analysis

• Global Tightening Cycle: The CNB's rate hike is seen as a response to external uncertainties and deteriorating risk sentiment, which may affect the rate hike path.
• Portfolio Inflows: In Argentina, portfolio inflows are no longer an option to finance capital flight, indicating a worsening external imbalance and negative growth.
• Liquefying of Liabilities: The ARS depreciation has led to the liquefying of local currency liabilities, with Lebacs in USD now $25bn below the peak of 2018.
• FEER Model Insights: The model highlights structural appreciation potential for the Brazilian Real, while Chilean and Mexican Pesos remain undervalued.

Strategy Contacts

Strategist	Job Title	Legal Entity	Phone Number
Shaun Daly	FX&IR CEEMEA Graduate	BNP Paribas London Branch	+442075951870
Gabriel Gersztein	Head of GM Latin America Strategy	Banco BNP Paribas Brasil S.A. (Sao Paulo)	+55 11 3841 3421
Dawn Kwa	FX & IR Asia Strategy	BNP Paribas Singapore Branch	+65 6210 3263

Legal and Regulatory Information

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Online Resources

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• BNP Paribas Strategy Website: www.bnpparibas.com

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