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EM STRATEGY DAILY SUMMARY - 18 October 2017

Core Content

This document is a daily strategy update from BNP Paribas, focusing on Emerging Markets (EM) developments across CEEMEA, Latin America (Latam), and Asia. It includes market outlook, key economic data releases, and regulatory information.

Key Economic Data and Market Outlook

• South Africa:

  • The main focus is on the September CPI data release.
  • Expected headline CPI to rise to 4.9% y/y from 4.8% y/y in August.
  • Core inflation is expected to slow to 4.5% y/y from 4.6% y/y.
  • The South African Reserve Bank (SARB) did not cut rates in the previous MPC meeting, showing a more hawkish stance.
  • The SARB is likely to maintain caution due to political uncertainty and potential credit rating downgrades.
  • If inflation continues to trend downward within the SARB's target range (3-6%), real rates may rise, supporting the ZAR in the short term.

• Mexico and NAFTA:

  • The 4th round of NAFTA negotiations concluded without progress on controversial issues, but all parties reaffirmed their commitment.
  • Mexican risk assets have rallied due to fears of withdrawal from the agreement.
  • Technical positions remain fragile, and volatility is expected in upcoming rounds.
  • The Mexican Central Bank (Banxico) is unlikely to hike policy rates at this time, as it has already tightened significantly.
  • The document suggests a favorable entry point for short-end of the TIIE curve, as markets are pricing in further tightening before year-end.
  • Long-end positions are recommended with caution due to high volatility. The strategy advises holding long USDMXN hedges through options.

• China:

  • The 19th National People's Congress is underway in Beijing and is expected to last a week.
  • The document does not expect significant event risk from the meeting.
  • Markets in Malaysia and Singapore are closed today for Deepavali celebrations.

Strategy Contacts

Key Information and Main Points

• The SARB is expected to maintain a cautious stance on monetary policy due to political uncertainty and credit rating concerns.
• Mexican authorities are likely to respond to negative developments using local currency-settled FX derivatives.
• The current market scenario in Mexico offers a favorable entry point for short-end of the TIIE curve, with long-end positions advised with caution.
• China's National People's Congress is expected to have minimal event risk, and markets in Malaysia and Singapore are closed today.
• The document is a marketing communication and not independent investment research.
• BNP Paribas may have conflicts of interest due to its involvement in trading and advisory roles.
• The information is not intended as investment advice and is subject to change without notice.

Legal and Regulatory Notice

• The document is non-independent research under UK FCA rules and is a marketing communication.
• BNP Paribas may engage in transactions inconsistent with the views expressed.
• No liability is accepted for any use of the document or its content.
• The document is for informational purposes only and may not be reproduced or distributed without prior consent.
• It does not constitute a prospectus or public offering and is not intended to provide legal, tax, or financial advice.
• Transactions involving the products discussed may involve high risk and volatility.
• The document may include simulated performance data and is not indicative of future results.