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EM Strategy Daily Summary - 17 October 2017

Core Content

This document is a daily strategy report from BNP Paribas, focusing on Emerging Markets (EM) and Latin America (Latam) financial conditions, with insights from the strategy teams in London, São Paulo, and Shanghai. It outlines market movements, potential policy responses, and legal disclaimers.

Key Market Observations

• EM Assets Performance: EM assets are trading on a weaker note due to the strength of the USD and higher US yields.
• CEEMEA Developments:
  • TRY (Turkish Lira): Bearish moves are prominent, with geopolitical tensions in Iraq again influencing the market.
  • ZAR (South African Rand): The South African Reserve Bank (SARB) Deputy Governor Mminele has highlighted risks of depreciation and limited room for further rate cuts. The SARB may delay policy easing until after the December ANC Conference.
  • CPI Data: The report suggests monitoring tomorrow's CPI data for further insight into the SARB's policy stance.
• Qatar: USDQAR has reached record highs in the offshore market, possibly due to reduced USD supply by Qatari banks, while the central bank continues to support local banks with USD.
• Mexico: The strategy team highlights possible lines of defense against an unwanted acceleration of MXN depreciation:
  • FX Hedging Program: Resuming this program is seen as the first line of defense, as it is settled in local currency and does not impact international reserves.
  • FX Intervention: A smaller probability is assigned to FX intervention due to Mexico's tight FX reserves position.
  • Monetary Policy: It is extremely unlikely that monetary policy will be used to counter excessive peso depreciation.

Asia Strategy Insights

• China FX Reform: The China Strategy Insight highlights the PBoC Governor Zhou Xiaochuan's call for continued FX reform and opening up of the economy.
• Market Reaction: The rates market has reacted positively to good data, with the firm maintaining its view on paying IRS (Investment Return Swap).
• China Strategists: The document includes contact details for China Strategy team members, Tianhe Ji and Kun Shan, based in Beijing and Shanghai respectively.

Contacts

Legal Disclaimer

• This document is non-independent research and is intended for Relevant Persons as defined under MiFID.
• No Investment Advice: BNP Paribas does not offer investment, financial, legal, or tax advice.
• Conflicts of Interest: The strategy teams may have conflicts of interest due to their involvement with sales and trading, which could affect objectivity.
• Indicative Information: Any indicative prices or terms are not binding and are based on internal models or available sources.
• No Liability: BNP Paribas and its affiliates disclaim any liability for inaccuracies or omissions in the document.
• Confidentiality: The information is provided on a confidential basis and must not be copied, reproduced, or distributed without prior written consent.

Additional Disclosures

• Options and ETFs: The document includes important disclosures for options and ETFs, highlighting risks and potential conflicts of interest.
• US Securities Laws: Certain securities may not be registered under US laws and are only available to Qualified Institutional Buyers or non-US persons under Regulation S.
• Regional Supervision: The document outlines the legal and supervisory frameworks in various European countries, including France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, and Switzerland, emphasizing the role of the ECB, ACPR, and national authorities.

Conclusion

The report provides a snapshot of EM and Latam market dynamics, focusing on currency movements, policy responses, and reform initiatives, particularly in China and Mexico. It also includes essential contact information and detailed legal disclaimers to ensure compliance and clarity regarding the nature of the information provided.