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EM STRATEGY | DAILY Summary - 27 April 2018

Core Content Overview

This document provides an analysis of emerging markets (EM) strategy and monetary policy expectations across key regions: Russia, CEEMEA, Asia, China, and Latin America (Latam). It also includes contact details for EM strategy analysts and legal disclaimers regarding the nature of the research and its use.

Key Policy Expectations

Russia

• The Central Bank of Russia (CBR) is expected to keep the policy rate on hold today, in line with market consensus.
• The rouble has experienced significant sell-off due to US sanctions, which have impacted the monetary easing.
• Inflation is currently at 2.4%, below the 4% target, and the central bank is likely to adopt a 'wait-and-see' approach.
• Strategy Insight: The rouble is unlikely to appreciate without direct central bank intervention, as funding costs are rising and FX purchases are resuming.

Colombia

• The central bank is expected to cut policy rates by 25bp today.
• The rate cut is supported by inflation nearing target, improved economic activity, and COP performance.
• The new policy rate is expected to be 4.25%.

Bank Indonesia

• The central bank has stated it is not hesitant to raise policy rates if needed to stabilize rupiah depreciation.
• The base case remains no tightening, due to a benign domestic economy and inflation.
• The central bank is likely to defend the 14,000 level.

Market Movements

• Asian equity and FX markets rebounded this morning as treasury yields fell and the dollar remained steady.
• The ECB did not release new information, leading to flat CEE3 currencies.
• The base case is that the ECB will end net asset purchases in December 2018, though the announcement might come in July.

Regional Strategy Notes

China

• Interbank liquidity is expected to remain stable following the RRR cut on 25 April 2018.
• The RMB Index has reached its highest level since May 2016, despite a narrowing CN-US interest rate spread.
• A correction in the RMB is considered overdue.

Latam (Argentina, Colombia, Brazil)

• Argentina: A long position in 5y CDS against a basket of Latam currencies is maintained, with avoidance of structural exposure due to unsustainable current account deficit, untenable fiscal approach, and worsening external conditions.
• Colombia: Strategy shifted to neutral on COP after taking profits on the long strategy.
• Brazil: Maintained 9m versus 18m flattener position in IBR and 5y payer in relative value against Mexican TIE.

Additional Information

• The document includes recent publications:
  • Chinese property market: Fire under the lid
  • Poland: Warning signals for growth

EM Strategy Contacts

Legal Disclaimer

• This document is non-independent research and is a marketing communication under MiFID II.
• It is not investment research and not subject to any prohibition on dealing ahead.
• No liability is accepted for any loss arising from reliance on the document.
• Indicative prices are provided for informational purposes only and are not binding.
• Performance data may be based on back-testing and is for illustrative purposes only.
• The document is confidential and not to be distributed without prior consent.
• No investment, financial, or legal advice is provided.

United States Disclosures

• Options: Complex instruments with high risk; only suitable for sophisticated investors.
• ETFs: Carry risks including tracking error, currency, and geopolitical risk.
• Convertibles and restricted securities: May not be registered under US securities laws and are restricted.
• Distribution: Limited to institutional investors and QIBs.

Distribution Jurisdictions

• UK: Document is communicated by BNP Paribas London Branch.
• France: Produced and/or distributed by BNPP SA and BNPP Arbitrage.
• Germany: Distributed by BNPP S.A. Niederlassung Deutschland.
• Belgium: Distributed by BNPP Fortis SA/NV.
• Ireland: Distributed by BNPP S.A., Dublin Branch.
• Italy: Distributed by BNPP Italian Branch (Succursale Italia).