20181206-法国巴黎银行-Introducing_the_BNPP-EM_economic_surprise_index_11页_1mb

Summary of BNPP-EM Economic Surprise Index Document

Core Content

The document introduces the BNPP-EM Economic Surprise Index, a tool developed by BNP Paribas to measure how economic data in emerging markets (EM) has surprised market participants. It is designed to provide a quick overview of macroeconomic surprises and to serve as a complementary tool for assessing the impact of these surprises on EM foreign exchange (FX) and sovereign bond markets.

The index is calculated daily and incorporates technical adjustments to reflect the time decay of economic data's impact on market prices. This is achieved through an exponential decay function, which reduces the weight of older data over time, ensuring that more recent information has greater influence on the index.

The index is based on 57 macroeconomic indicators from 17 EM countries across Latin America, Central and Eastern Europe, the Middle East, and Asia, with a combined GDP of USD 26.5 trillion. Each country's weight in the index is determined by its GDP in USD terms, as per World Bank norms. Additionally, each indicator is assigned a weight based on its historical impact on FX, credit, and rate markets, ranging from low (1) to high (3).

Main Points

• Economic Surprise Definition:
  A surprise is calculated as the standard deviation of actual data from the consensus forecast. The formula is:
  $$
  \text{Surprise} = \frac{\text{Input} - \mu(\text{input})}{\sigma(\text{input})}
  $$
  where:

  • Input = Economic release - consensus forecast (median)
  • $\mu$ = mean of the input since 2008
  • $\sigma$ = standard deviation of the input since 2008

• Time Decay Adjustment:
  To account for the diminishing importance of older data, a decay factor is applied to each surprise. This factor is an exponential function that reduces the weight of the data over time. The decay rate ($\lambda$) is calculated to ensure that the lingering effect of data on prices is reduced by 20% after 30 days:
  $$
  \lambda = \frac{\ln(0.20)}{-30} \approx 0.0536
  $$

• Current Index Performance:

  • The EM economic surprise index has been negative for 13 consecutive weeks, marking the longest and most severe negative cycle in the last four years.
  • Ex-China, the index has turned slightly positive after being in the red since July 2018.
  • Positive surprises are currently observed in South Korea, Taiwan, Chile, and Poland, while Turkey, Mexico, and China are at the bottom of the list.
  • Asia ex-China and South Korea are leading in positive surprises, while Latin America and CEEMEA remain in the negative camp.

Key Information

• The index is market-oriented and reacts quickly to weekly changes in economic surprises.
• The surprise score is used to assess the impact on EM FX and sovereign bonds, as shown in Figures 1–4.
• The weighting of countries is based on GDP size, and the weighting of indicators is based on historical market impact.
• The surprise value for EM is currently -0.06, while ex-China is at -0.07.
• The 3-month trend for EM surprises is -0.17, and for ex-China, it is -2.5.
• The cumulative negative surprises score for EM is 0.0, indicating the potential for a turnaround.

Technical Adjustments

• The surprise value for any economic release is adjusted by a decay factor that reduces its influence over time.
• The decay is applied using the formula:
  $$
  \text{Decayed Surprise} = \text{Surprise} \times \exp(-\lambda \times \text{days since release})
  $$
  For example, a retail sales surprise of -2.18 on day 6 becomes -1.58, and on day 7, it becomes -1.50.

Country and Indicator Weighting

• China (GDP: USD 12,238 mn):

  • M2: 2
  • Trade balance: 2
  • Industrial Production: 3
  • PMI manufacturing: 3
  • New Yuan Loans: 2
  • Retail Sales: 1
  • Reserves: 1
  • GDP YoY: 1
  • Average: 2

• South Korea (GDP: USD 1,531 mn):

  • Industrial Production: 3
  • Unemployment: 2
  • Exports: 2
  • Imports: 1
  • Average: 2

• Rest of Asia ex-Japan (GDP: USD 5,052 mn):

  • Malaysia Ind Production: 1
  • Taiwan Ind Production: 2
  • Thailand Exports: 3
  • Indonesia Exports: 2
  • India Ind Production: 3
  • Philippines Remittances: 1
  • Average: 2

• Latin America (GDP: USD 3.545 trillion):

  • Argentina: Industrial Production (3), Economic Activity (2), GDP YoY (1), Average (2)
  • Colombia: Retail Sales (3), Trade Balance (2), GDP YoY (1), Average (2)
  • Brazil: Industrial Production (3), Retail Sales (3), Caged (2), Budget (2), Tax Revenues (2), Average (2)
  • Chile: Economic Activity (3), Unemployment (1), Retail Sales (2), Trade Balance (2), Average (2)
  • Mexico: Industrial Production (3), Trade Balance (2), Consumer Confidence (1), Gross Fixed Investment (2), IAGE Economic Activity (3), GDP YoY (1), Average (2)
  • Turkey: Industrial Production (2), Trade Balance (1), Current Account (3), Average (2)
  • Poland: Current Account (2), Sold Industrial Output (3), Retail Sales (3), Trade Balance (1), GDP YoY (1), Average (2)
  • South Africa: Economic Activity (3), Unemployment (1), Retail Sales (2), Trade Balance (2), Average (2)

Legal and Regulatory Notice

• The document is non-independent research and may be subject to conflicts of interest due to its interaction with sales and trading.
• It is intended for professional clients and eligible counterparties under MiFID II.
• The content is for information purposes only and does not constitute an offer to sell, solicitation, or advisory.
• Performance data may include back-testing, which is hypothetical and not indicative of future results.
• Options and ETFs discussed in the document may involve high risk and are not suitable for all investors.
• Confidentiality and disclosure obligations are emphasized, and the document may contain restricted securities.
• No guarantee is given regarding the accuracy, completeness, or reliability of the information provided.
• BNPP may have conflicts of interest and may engage in transactions inconsistent with the views expressed in the document.
• The document is not a prospectus and is subject to change or discontinuation.

Conclusion

The BNPP-EM Economic Surprise Index is a comprehensive tool for analyzing macroeconomic surprises in emerging markets. It provides insights into market reactions and FX and bond performance, incorporating technical adjustments to reflect time decay. While the index has remained negative for 13 weeks, there are early signs of stabilization, particularly ex-China. The index is market-oriented, with country and indicator weighting based on GDP and historical impact. It is important to note that the document is for professional use and does not provide investment advice.