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EM STRATEGY DAILY SUMMARY - 03 November 2017

Core Content

This document provides a daily summary of Emerging Markets (EM) strategy insights, focusing on key economic and political developments in Turkey, the Czech Republic, and other EM regions, along with relevant market updates and legal disclaimers.

Key Market Updates

Turkey

• CPI Inflation: Turkey's October CPI inflation rose to 11.9% y/y, up from 11.2% in the previous month.
• Core CPI Trend: The Central Bank of the Republic of Turkey (CBRT) Core C trend indicator increased by more than 1 percentage point to 14%, surpassing its previous peak in March.
• Central Bank Policy: The CBRT is expected to tighten monetary policy. If they do not provide overnight repo funding and force funding through the late-liquidity window, the average repo rate could rise by up to 25 basis points to 12.25%.
• Credit Rating Review: S&P is scheduled to review Turkey's credit rating (unsolicited). The current rating is BBu (neg), and it is unlikely to change from BB, which is already one notch below Moody's and Fitch.
• Market Reaction: Turkish Lira (TRY) is expected to face bearish momentum due to the inflation data.

Czech Republic

• Interest Rate Hike: The Czech National Bank (CNB) raised the repurchase rate by 25 basis points to 0.50%, as expected.
• FRA Forecasts: The 9x12 FRA predicted a 3m PRIBOR of 1.20%, while the CNB’s forecast was 0.90%, indicating lower-than-expected upward revisions.
• EURCZK Performance: The EUR/CZK exchange rate closed above 25.70 and has remained strong in the morning session.
• ECB Influence: The CNB noted that CZK rates may not rise further due to the expectation of the ECB maintaining accommodative policy in 2018.

Global Trade and Geopolitical Focus

• Trump's Asia Tour: President Trump is visiting Japan, South Korea, China, Vietnam, and the Philippines until November 12, with a focus on trade and geopolitical issues.
• China-US Relationship: The China-US trade relationship is a key area of attention for markets during the trip.

Venezuela

• Debt Restructuring: President Maduro announced that Venezuela will seek to restructure its global debt and that the oil company will still make payments on its obligations this week.

Key Contacts

Main Views

• Turkey's inflation data has exceeded expectations, leading to potential monetary tightening by the CBRT.
• The US tax package is expected to be passed by the end of the year, with Jerome Powell confirmed as the next Fed Chair.
• Powell's nomination is seen as dovish, but the deputy Chair position is a key point of interest for market participants.
• US payroll data is expected to show a strong rebound, with forecasts of 280k jobs added.
• The Czech Republic's rate hike was in line with expectations, but forecasts were weaker than anticipated, which may affect CZK interest rates.
• EURCZK has maintained gains, reflecting market confidence in the Czech Republic's monetary policy.
• Global trade tensions, especially China-US relations, are likely to influence market sentiment during Trump's Asia tour.
• Venezuela is focusing on debt restructuring, but it will still make obligation payments this week.

Legal Disclaimer

• This document is non-independent research and is intended for professional clients.
• It does not constitute investment advice or financial, legal, or tax guidance.
• BNP Paribas may have conflicts of interest due to its involvement in investment banking, underwriting, and other services.
• Indicative prices and performance data are not actual transaction terms and are subject to change.
• Options and ETFs discussed may involve significant risk, including market, credit, and liquidity risk.
• Securities mentioned may be restricted and only available to qualified institutional buyers or non-US persons.
• The document is confidential and not for public distribution.
• Legal compliance is emphasized, with regulatory notices for various jurisdictions including UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, and Spain.

Summary

This summary outlines the key economic and political developments in Turkey, the Czech Republic, and global markets, as well as important legal disclaimers. It highlights inflation trends, monetary policy expectations, and trade-related concerns, providing a brief overview for professional investors and market participants.