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EM STRATEGY | DAILY - 05 July 2018 Summary

Core Content Overview

This document provides a summary of key events and market outlook for Emerging Markets (EM) on 05 July 2018, focusing on inflation data, policy implications, and market movements in various regions. It is produced by BNP Paribas and includes details about the contacts involved in the strategy team, as well as important legal disclosures.

Key Market Developments

Asia

• Philippines CPI: The CPI rose to 5.2% (expected 4.8%), exceeding the upper bound of the BSP's inflation target of 4%. This is a significant deviation and may prompt the BSP to consider additional rate hikes.
• China RRR Cut: The PBoC's 50bp reduction in the reserve requirement ratio (RRR), announced on 24 June, became effective on 05 July. This indicates continued liquidity support.
• China NDIRS Trade: The team reached a stop loss on their China 1y NDIRS trade at 2.95%, suggesting that the market still believes in looser liquidity and potential further declines in IRS.
• India MSP Scheme: The government announced the Minimum Support Price (MSP) scheme for kharif crops, with paddy and cotton seeing price hikes of 13% and 28% respectively. This move is expected to increase inflation and widen the fiscal deficit, potentially leading to rate hikes later in the year.

CEEMEA

• Turkey Cabinet Announcements: Turkey will announce the appointment of cabinet ministers and President Erdogan's oath on 9 July. Positive appointments for economic roles and a bond auction on 10 July could provide short-term lira support.
• Lira Performance: The lira is currently at lows not seen since 2001 on a REER basis. The significant CPI downside surprise on 3 July (15.4% y/y vs 13.9% exp.) likely postponed a meaningful recovery.
• Hungary Central Bank Minutes: The minutes of the June meeting were less dovish than the previous one, although the MNB still maintains liquidity flush. The central bank expressed caution over external developments and indicated that loose monetary conditions cannot persist for long (5-8 quarters).

Strategy Contacts

Legal and Regulatory Information

• This document is non-independent research for the purpose of UK FCA rules and is considered a marketing communication under MiFID II.
• It is not investment research and does not constitute an offer to sell or issue securities.
• The document may contain performance data based on back-testing and is for illustrative purposes only.
• BNPP may have conflicts of interest due to its involvement in investment banking, underwriting, or advisory services related to the mentioned entities.
• The document is intended for professional clients and relevant persons only and should not be relied upon as authoritative.
• It is confidential and may not be copied or distributed without prior written consent.
• The document is subject to legal restrictions in the U.S. and may only be distributed to certain qualified persons.
• BNPP may act as a market maker or advisor in the financial instruments discussed.

Additional Information

• The document is produced by BNP Paribas London Branch, with additional contributions from other branches.
• For more details on the China NDIRS trade, see: CSI: Stop loss on paying 1-year repo NDIRS.
• The upcoming Taiwan CPI print is expected at 1.54%, which is below the central bank's target of 2%.
• Malaysia's trade balance disappointed market expectations at MYR8.12bn.