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EM STRATEGY | DAILY SUMMARY - 05 June 2018

Core Content Overview

This document provides a summary of key economic and market developments across emerging markets (EM) for 05 June 2018, focusing on CEEMEA (Central and Eastern Europe, Middle East, and Eastern Europe), Latin America (Latam), and Asia. It also includes contact details for EM strategy team members and legal disclosures regarding the nature of the report.

Key Economic and Market Developments

South Africa

• Q1 GDP Growth: Expected to be poor, with q/q annualised growth likely slipping into negative territory (-0.5% from +3.1% in Q4 2017).
• Y/Y Growth: Still expected to improve to above 2.0% due to base effects.
• Future Outlook: Improved confidence, higher household consumption, and better fixed investment from Q2 onwards are anticipated to support growth of 2.2% in 2018.
• 2019 Outlook: Growth is likely to slow to 1.9% as political momentum fades.

Czech Republic

• Central Bank's Forward Curve: Hawkish comments from Vice Governor Mojmír Hampl led to a repricing higher in the forward curve.
• FRA Pricing: FRAs are currently pricing around a 65% chance of tightening by the end of the year.
• EURCZK: EURCZK trades at 25.7, above the CNB's Q2 average forecast of 25.2.
• Central Bank Policy: Policymakers have flagged rising inflationary risks, suggesting the central bank may take a more active approach to stimulate CZK appreciation with another 25bp rate hike.

Asia

• Thailand: Governor Veerathai signals a neutral policy stance, with inflation expected to remain below the central bank's 1-4% target.
• India: Former RBI governor Rajan notes that emerging markets face stresses from a rising dollar, international interest rates, and capital outflows, but large Asian economies are not in immediate danger due to narrow current account deficits, moderate inflation, and resilient currencies.
• Malaysia: Finance Minister Lim stated the government has no plans to peg the ringgit. A trade surplus of MYR 13.1bn was reported for April, with exports rising 14% y/y and imports up 9.1% y/y.

Latin America

• Colombia: Services inflation is expected to show softer pressure compared to 2017. Non-tradable CPI inflation for May should decelerate by around 10bp to 4.5%, while core CPI inflation is expected to rise slightly to 4.0% y/y due to higher gasoline prices.
• Mexico: President López Obrador (AMLO) is expected to win the presidential election comfortably. His coalition's representation in Congress will determine the fate of reforms, fiscal policy, and oil auctions. These areas are most susceptible to changes as they do not require a two-third majority.

Strategy Team Contacts

Legal Disclosures

• Non-Independent Research: This document is non-independent research and constitutes a marketing communication under MiFID II.
• Conflicts of Interest: The document may contain information that could result in conflicts of interest due to BNPP's interaction with sales and trading.
• No Investment Advice: BNPP does not provide investment, financial, legal, or tax advice.
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• Disclaimer: The information and opinions are based on public sources and may not be accurate or complete. No assurance is given that any indicated returns or results will be achieved.
• Performance Data: Any performance data is based on back-testing and simulations and does not reflect actual market conditions or future results.
• Regulatory Compliance: The document is intended for professional clients and eligible counterparties. It may not be suitable for retail investors.

Additional Information

• Online Resources:

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

• Bloomberg Research Codes:

  • Fixed Income Research: BPFR
  • G10 Interest Rate Research: BPBS
  • Emerging Markets Research: BPFR
  • Market Economics: BPEC

• United States Disclosures:

  • Options and ETFs are complex and may involve high risk.
  • Certain securities may not be registered under US Securities Laws and are restricted.
  • The document is a general solicitation of derivatives business and not intended for retail investors.

UK and France Disclosures

• UK: The document is communicated by BNP Paribas London Branch, authorised and supervised by ECB, ACPR, and Prudential Regulation Authority.
• France: The report is produced and/or distributed by BNPP SA and BNPP Arbitrage, both authorised and supervised by ECB and ACPR.

Legal Notice

• The document is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.
• BNPP and its affiliates may have financial interests in the securities discussed, including acting as market makers, advisors, or underwriters.
• No liability is accepted for any direct or consequential loss arising from the use of this document.