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EM Strategy Daily Summary - 08 March 2018

Core Content Overview

This document provides a daily update on Emerging Markets (EM) strategy, focusing on key events and market outlooks for the CEEMEA (Central and Eastern Europe, Middle East, and Africa), Asia, and Latin America (Latam) regions. It includes insights on interest rates, currency movements, bond markets, and economic indicators, along with relevant contacts and legal disclosures.

Key Global Events

• ECB Policy Meeting: The central bank is expected to maintain its current rhetoric, with potential language upgrades at the next meeting.
• Turkey Downgrade: Moody's downgraded Turkey's credit rating by one notch to Ba2, adjusting the outlook from negative to neutral. The downgrade is attributed to continued loss of institutional strength, delays in structural reforms, and increased external risk. Turkish credit spreads are around 5bp wider.
• Asian Equity Markets: Trading on a stronger tone due to reduced concerns over US trade issues on metals and aluminium, with Canada and Mexico being exempt.
• Chinese Government Bonds: Bullish targets have been reached, with a revised objective of 3.6% for the 5-year bond. Factors supporting the bond market include reduced fiscal deficit, regulatory changes, and foreign investor inflows.

CEEMEA Insights

Turkey

• Moody's downgrade to Ba2 with neutral outlook.
• Credit spreads widened by 5bp.
• Institutional weakness and structural reform delays remain key concerns.

Hungary

• February CPI at 1.9% y/y, below the previous month's 2.1%.
• Central Bank (MNB) maintains a dovish stance to stimulate growth and prevent EURHUF from falling below 301.
• EURHUF trades above the threshold despite rate hikes and wider spreads to EUR rates.

Poland

• NBP kept policy rates unchanged.
• Dovish tone at the press conference, with Governor Glapinski suggesting rates may remain unchanged until end-2018 and possibly not be raised until 2019 or 2020.
• 5y swap rate fell by almost 10bp, and PLN weakened by ~0.5% against the EUR.
• 2018 CPI forecast revised down to 1.6-2.5% from 1.6-2.9%.
• GDP forecast revised up to 3.5-5%.
• New pension reform (Employee Capital Plans - PPK) is expected to be rolled out between January 2019 and July 2020, potentially leading to higher unit labour costs and inflation in 2021.

Asia Insights

• China: Bullish targets on government bonds have been achieved, with a new objective of 3.6% for the 5-year bond.
• Economic Outlook: GDP growth target remains at 6.5% for 2018. Monetary policy is expected to focus on financial risk control and economic stability.
• Trade Data: February trade balance showed strength, driven by increased exports.
• FX Market: USDMXN is close to short-term fair value, with the peso expected to follow broader EM FX trends. Recent NAFTA negotiations may create market volatility.

Latam Insights

• Mexico: Biweekly inflation data on Thursday will be closely watched. The disinflation process is ongoing, but the market is pricing in a lower probability of rate hikes this year.
• TIE Curve: The long-end of the TIE curve has a substantial premium, especially when adjusted for Mexico's credit rating.
• FX Outlook: The peso is expected to trade in line with the broader EM FX trend.

Key Contacts

Legal Notice

• This document is non-independent research and may be subject to conflicts of interest.
• It is intended for Professional Clients and Eligible Counterparties under MiFID II.
• It is not investment research and does not constitute an offer to sell or issue securities.
• All estimates and opinions are subject to change and based on internal models and assumptions.
• No liability is accepted for any use of the information contained in this document.
• The document may include back-tested performance data and is for illustrative purposes only.
• It is not a prospectus or public offering document and may not be used for investment decisions without proper legal and financial advice.

US Disclosures

• Options and ETFs discussed are complex and carry significant risks.
• Some securities may not be registered under US law and are restricted.
• Transactions must be conducted through BNPPSC or authorized by law.
• BNPPSC is a registered broker-dealer and futures commission merchant.

UK Disclosures

• This document is communicated by BNP Paribas London Branch.
• It is subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority.
• Legal and regulatory compliance is maintained under ECB and ACPR supervision.

France Disclosures

• The report is produced and/or distributed by BNPP SA and/or BNPP Arbitrage.
• BNPP SA is authorized and supervised by ECB and ACPR.
• BNPP Arbitrage is an unlimited liability company authorized by ACPR and AMF.

Germany Disclosures

• The report is distributed by BNPP Niederlassung Deutschland.
• It is subject to limited supervision by BaFin and ECB/ACPR.

Belgium Disclosures

• BNPP Fortis SA/NV is authorized and supervised by ECB and National Bank of Belgium.