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EM STRATEGY DAILY - 04 July 2018 Summary

Core Content

This document is a daily strategy report from BNP Paribas covering Emerging Markets (EM) updates, focusing on key currencies, interest rates, and market conditions across various regions. It includes insights from multiple strategists and is intended for professional clients and relevant financial professionals.

Key Regions and Insights

China

• CNY Performance: Risk markets rallied yesterday led by gains in the CNY.
• PBoC Actions: The PBoC pledged to keep the yuan stable and at a reasonable, balanced level.
• RRR Cut: A 50bp RRR cut was announced on 24 June and will take effect from tomorrow.
• Interest Rate Strategy: The firm still favors paying 1-year repo NDIRS.
• Previous Entry Level: The recommended entry level of 3.05% was acknowledged as too early.
• Market Outlook: With the USDRMB at 6.70, there is potential for upward pressure on front-end rates.

Thailand

• Minutes Released: Minutes of the Bank of Thailand's June meeting were released today.
• Inflation and Growth: Both inflation and growth forecasts were revised upward.
• Policy Tone: The central bank's tone was more hawkish, suggesting possible rate hikes next year if inflation remains within target.

Turkey

• CPI Data: Headline CPI rose to 15.4% y/y (vs. 13.9% expected), indicating upside surprise.
• Core and PPI: The jump in core CPI and PPI suggests lira depreciation is affecting local price setters.
• CPI Forecast: Revised CPI forecast for July is around 16%, with a gradual decline to 14.2% by the end of 2018.
• Policy Outlook: Pressure on the central bank to tighten policy is expected at the 24 July meeting.
• FX Outlook: The lira may find short-term support due to seasonal factors like a softer current account deficit and better debt repayment schedule.

Brazil

• FRA Position: The firm reached its target for the Brazil FRA DI Jan22s23s receiver position.
• DI Market: The DI market has been dysfunctional over the last month.
• Target Adjustment: The target for FRA DI Jan22s23s has been extended to 12.25%.

Chile

• Recommendation: Recommend receiving 18m CLPxCAM at 3.08%.
• Position Closure: Closed the existing CLPxCAM 2s1s flattener.
• IR Swap Curve: The steepness of the Chilean IR swap curve is at levels that seem too high despite projected rate policy adjustments.
• Hike Expectations: The curve is already pricing in +125bp of further hikes by October 2019, above both firm projections and the economics team's forecast.

Strategy Contacts

Production Team

Legal and Regulatory Information

• Non-Independent Research: This document is non-independent research for the UK FCA and is a marketing communication under MiFID II.
• Disclaimer: It does not constitute investment research and is not subject to independence requirements. It is for informational purposes only.
• Confidentiality: The information is provided on a strictly confidential basis and may not be copied or distributed without prior written consent.
• Conflicts of Interest: The firm may have conflicts of interest due to its interaction with sales and trading, which could affect the objectivity of the report.
• Performance Data: Performance data may be based on back-testing and is for illustrative purposes only.
• ETF and Options Disclosures: ETFs and options discussed are subject to specific disclosures and may involve high risk.
• US and EU Disclosures: The document contains important disclosures for US and EU markets, including compliance with FINRA, SEC, CFTC, and other regulatory bodies.

Additional Notes

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

Conclusion

The report highlights the firm's strategic positions and market outlook across several EM countries, emphasizing the importance of monitoring central bank actions, currency movements, and market dynamics. It also underscores the need for professional judgment and the potential for conflicts of interest.