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EM STRATEGY DAILY SUMMARY - 02 February 2018

Core Content

This document provides an overview of emerging market (EM) strategy and market analysis for the week of 02 February 2018, focusing on key events and trends in the United States, CEEMEA, Latin America, and Asia. It includes insights from BNP Paribas' FX and IR teams, as well as economic forecasts and market recommendations.

Key Market Updates

United States

• Nonfarm Payroll (NFP): Expected to show an above-consensus 230k gain in January employment, driven by seasonal factors.
• Unemployment Rate: Projected to fall to a new decade low of 4.0%.
• Earnings Growth: M/m trend-like earnings growth is likely to slow slightly.

CEEMEA

• Hungary (MNB):
  • Sold 50bn HUF in 10y IRS at 1.17% and 10bn HUF in 5y IRS at 0.46%.
  • The volume of IRS offered was unchanged from the first tender but shifted to longer-dated swaps.
  • HUF has not significantly appreciated despite the rate spike, suggesting the MNB may increase supply and guide the curve flatter.
  • Position: Remain long HUF 5y IRS with a 5k USD allocation and stop-loss extended to 1.20%.
  • Also remain long EURHUF (10mio EUR).
• Czech Republic (CNB):
  • Hiked rates by 25bp to 0.75%, in line with expectations.
  • Revised down the 2019 PRIBOR forecast to 1.7%.
  • Governor Rusnok suggested another rate hike in 2018 is "highly likely".
  • Central bank forecasts indicate a softening of EURCZK depreciation to prevent undershooting inflation targets.

Latin America

• Brazil:
  • Taking profits on the local USD rates payer position.
  • Market has moved towards fair value, with the curve steepening.
  • Recommendation: Lock in gains at 3.53%, resulting in a 27bp gain.
• Chile:
  • Central bank left the policy rate unchanged, as expected.
  • Inflation concerns have eased, and rate normalization is expected in H2 2018.

Asia

• FX Markets:
  • Mixed performance overnight; CNY gained while KRW and INR fell.
  • Asian currencies have rallied this year, but a technical setup suggests a potential correction.
  • KRW is considered the most vulnerable currency due to its recent rally.
  • Position: Recommended a long 1m USDKRW with a target of 1096.
• India:
  • FY19 budget deficit is expected to be 3.5% of GDP for FY18 and 3.3% for FY19.
  • Revenue growth projection for FY19 at 14.6% may be overly optimistic.
  • A 10% long-term capital gains tax on equity gains over INR 100,000 is introduced.

Strategy Recommendations

• Hungary: Maintain long positions in HUF 5y IRS and EURHUF.
• Brazil: Take profit on local USD rates payer position at 3.53%.
• Chile: Expect policy rate to remain on hold near term.
• Asia: Position for a potential correction, with a focus on KRW.
• India: Monitor budget deficit and revenue growth projections closely.

Contacts

Legal Disclaimer

• This document is non-independent research and is a marketing communication.
• It is not intended as investment research and may be subject to conflicts of interest.
• No liability is accepted for inaccuracies or omissions.
• Performance data may be based on back-testing and is not indicative of future results.
• Indicative prices are not actual transaction terms and may vary significantly.
• Options and ETFs discussed are complex and may involve high risk.
• Securities mentioned may be unregistered and only available to qualified buyers.

Online Resources

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• BNP Paribas Strategy Website: www.bnpparibas.com

Important Disclosures

• Options: Complex instruments, not suitable for all investors.
• ETFs: May involve tracking error, currency, and geopolitical risks.
• Unregistered Securities: May be restricted and only available to QIBs or non-US persons.
• Distribution Restrictions: Only available to major U.S. institutional investors or through BNPPSC.

Regulatory Information

• UK: This document is communicated by BNP Paribas London Branch.
• France: Report is produced and/or distributed by BNPP SA and/or BNPP Arbitrage.
• US: Distributed by BNPPSC to institutional investors or through authorized channels.

Conclusion

The document highlights the EM strategy team's outlook on various regions, including US employment data, Hungary's interest rate swap activity, Czech Republic's rate hike, Brazil's USD rates, Chile's monetary policy, and Asia's FX correction risks. It also includes India's budget implications and legal and regulatory disclosures to ensure compliance and transparency.