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EM Strategy Daily Summary - 24 April 2018

Core Content

This document provides an overview of emerging markets (EM) strategy and market updates for the week of 24 April 2018, focusing on key developments in Asia, CEEMEA, and Latin America (Latam), with insights from various BNP Paribas strategists.

Key Market Updates

Asia

• Bank Indonesia Intervenes: The central bank has taken action to stabilize FX volatility, suggesting other Asian central banks may follow suit.
• Inflation Data: Singapore's core inflation dropped to 1.5% y/y in March, below consensus expectations and the previous 1.7%. Headline inflation was also weaker at 0.2% (expected 0.5%).
• RMB Fixing: The PBoC set the RMB fixing at 6.3229 per dollar, the weakest since March 23. The 10-year CDB benchmark rose around 10bps since the RRR cut announcement, presenting a potential opportunity for long duration onshore rate investments.

CEEMEA

• Hungary (MNB): The central bank is expected to hold policy rates steady at 0.9%, consistent with its policy since 2016.
• Currency Trends: The HUF has appreciated against core European currencies due to the tightening of the spread. A lower EURHUF is a prerequisite for policy changes, but the risk at current levels is considered low.

Latin America

• Mexico: Non-residents' exposure in nominal rates increased by 10% in USD terms in March, the largest monthly rise since January 2015. This was mainly driven by increased holdings in longer tenors (5y onwards), while short-end exposure decreased slightly.
• Pension Funds: Mexican pension funds are increasing fixed income exposure, reversing a previous trend of shifting to equities.
• Derivative Positions: The document outlines specific derivative trades:
  • Receive 5y5y TIIE against US 5y5y swap
  • Receive 5y TIIE against paying Colombia IBR 5y
  • Pay the belly of TIIE Fly 2Y-5Y-7Y
  • Receive 1Y1Y TIIE

Key Views and Analysis

• Dollar Volatility: The dollar has shown less bullish behavior compared to the previous day, leading to more balanced openings in EM equity and FX markets.
• FX Exposure: EM currencies with low yields have weakened following dollar strength, while high-yielding currencies continue to face pressure as 10y USTs approach the 3% handle.
• Turkey Trade Update: A 10y local bond trade was closed with a 4.0% return. Remaining positions will now have adjusted take-profit and stop-loss levels to 12.2% and 13.05%, respectively.

Contacts and Strategy Team

Legal and Disclaimer Information

• Non-Independent Research: This document is non-independent research and may be subject to conflicts of interest.
• Marketing Communication: It is intended for Professional Clients and Eligible Counterparties as defined under MiFID II.
• No Investment Advice: BNPP does not provide investment, financial, legal, or tax advice.
• Performance Data: Any performance data is based on simulations and not indicative of future results.
• Confidentiality: The document is provided on a strictly confidential basis and may not be distributed without prior consent.
• Risk Disclosure: Transactions may involve high risk and significant volatility, with potential for total loss.
• U.S. Disclosures: Certain securities may not be registered under U.S. law and are restricted. The document is for general information and may be a general solicitation for derivatives business.

Online Resources

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

Disclaimer Summary

• No Guarantee of Accuracy: Information is based on public sources and may not be independently verified.
• No Liability Assumed: BNPP disclaims all liability for any use of the information or reliance on it.
• Confidentiality and Use: The document is for intended recipients only and may not be used or distributed without permission.
• Regulatory Compliance: The document is compliant with UK, EU, and U.S. regulatory frameworks.