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EM STRATEGY DAILY - 01 December 2017 Summary

Core Content

This document is a daily strategy report from BNP Paribas, focusing on Emerging Markets (EM) currencies, equities, and market conditions across various regions, including CEEMEA (Central and Eastern Europe, Middle East, and Eastern Europe), Latin America (Latam), and Asia. It provides market insights, key economic indicators, and investment recommendations, along with legal and regulatory disclosures.

Main Points

Turkey

• Currency Trends: The Turkish Lira (TRY) has been under negative momentum due to ongoing geopolitical uncertainties.
• USDTRY Outlook: The USDTRY pair is expected to continue rising until the Central Bank of Turkey (CBRT) provides sufficient premium via tightening monetary policy.
• Momentum Analysis: Historical data suggests that weekly returns of over +4% are needed to slow bearish momentum. However, since mid-September, the TRY has failed to achieve this level.
• Recommendation: The report recommends a short position on TRY against USD, targeting 4.05.

United States

• Senate Tax Bill: The vote on the Senate tax bill was delayed and is expected to occur today.
• DXY Index: The USD Index (DXY) ended November weaker, with a 1.5% loss, breaking a two-month strengthening streak.
• EM FX Performance: Month-end flows provided a relief rally for most EM currencies.
• DM Equities Impact: Strong momentum in developed market (DM) equities continues to exert upward pressure on funding currency yields, which could challenge EM currencies reliant on external funding.

CEEMEA Economic Data

• Czech GDP: Q3 GDP growth was 5% y/y, in line with expectations.
• Poland GDP: Q3 GDP was revised up to 4.9% y/y from an initial 4.7% y/y.
• Poland Inflation: Flash CPI inflation rose to 2.5% y/y in November, up from 2.1% y/y in October.
• PMI Data: November manufacturing PMI numbers across the region will be published today, with CEE3 PMIs remaining strong above 50.

OPEC Output Cuts

• Announcement: OPEC and its partners extended output cuts by 9 months to end-2018.
• Market Reaction: The market had anticipated this outcome, so the announcement did not lead to significant price moves.

Sovereign Ratings

• Bahrain: S&P is reviewing Bahrain’s rating (foreign currency at BB-), with concerns over external liquidity risks and fiscal vulnerabilities (government debt at 90% of GDP).
• Bulgaria: S&P and Fitch are reviewing Bulgaria’s rating (BB+ pos and BBB- pos, respectively).

Latin America (Latam)

• Brazil: The Central Bank of Brazil (BCB) announced it will roll-over FX swaps maturing in January 2018 between today and 20 December 2017, reducing uncertainty.
• GDP Focus: Today’s focus is on Brazilian Q3 GDP data.

Asia

• India: After five quarters of deceleration, India’s GDP growth picked up to 6.3% y/y in Q3 2017, above the 5.7% in Q2 and 6.4% consensus.
• RBI Policy Outlook: The Reserve Bank of India (RBI) is likely to consider policy tightening from the second half of 2018 due to inflationary pressures.

Key Information

• EM Strategy Contacts:

  • Wike Groenenberg: Head of Emerging Markets Research, CEEMEA & APAC, London
  • Marcelo Carvalho: Head of Emerging Markets Research, Latam, Sao Paulo
  • Piotr Chwiejczak: FX & IR CEEMEA Strategist, London
  • Sai Ulluri: FX & IR CEEMEA Strategist, London
  • Mirza Baig: Head of FX & IR Asia Strategy, Singapore
  • Altaz Daga: AU/NZ IR Strategist, Singapore
  • Kun Shan: China Strategist, Shanghai
  • Tianhe Ji: China Strategist, Beijing
  • Gabriel Gersztein: Head FX & IR Latam Strategy, Sao Paulo
  • Samuel Castro and Gustavo Mendonca: FX & IR Latam Strategists, Sao Paulo

• Legal and Regulatory Disclosures:

  • The document is non-independent research and is a marketing communication.
  • It may not be suitable for all investors and is intended for professional clients.
  • BNP Paribas may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
  • It does not constitute an offer to sell or purchase any financial instrument.
  • Performance data may be based on back-testing and is not indicative of future results.
  • The document is confidential and may not be distributed without written consent.

Summary of Recommendations

• Turkey: Short TRY vs. USD, targeting 4.05.
• EM FX: Expect challenges from DM equities momentum and external funding dependency.
• India: Likely policy tightening in 2018 due to inflationary pressures.
• Latam: Brazil's early FX swap announcement reduces uncertainty, and focus is on Q3 GDP data.

Additional Notes

• The document is produced by BNP Paribas group companies and is intended for specific recipients.
• Options and ETFs carry high risk and are not suitable for all investors.
• Certain securities may be unregistered and only available to qualified institutional buyers or non-US persons under Regulation S.