20171106-法国巴黎银行-Morning_Meeting_Notes_8页_424kb

EM STRATEGY | TURKEY DESKNOTE Summary

Core Content

This document provides an analysis of the Turkish economy and financial markets as of 6 November 2017, focusing on inflation trends, central bank actions, and currency movements. It is prepared by Turk Ekonomi Bank A.S. and highlights the key developments affecting the Turkish Lira (TRY) and related financial instruments.

Key Market Developments

• Inflation Forecast Revisions:
  The October inflation rate was higher than expected, leading to an upward revision of the end-2017 CPI inflation forecast to 11.2% y/y from 9.8%, while the end-2018 forecast remains at 8.8%.

  • The main drivers of the inflation increase were the ending of tax cuts on white goods and currency depreciation.
  • Food inflation remained largely unchanged, but core inflation rose above its previous peak, reaching an estimated 14.1% y/y in October.
  • Services inflation eased slightly to 9.3% y/y from 10% in the previous month.

• CBRT Actions:
  The Central Bank of the Republic of Turkey (CBRT) is expected to tighten liquidity conditions today, with a 50% probability of raising the average repo funding rate to 12.25%.

  • The CBRT will release the inflation note and Real Effective Exchange Rate (REER) index today.
  • The current average repo rate is 12.0%, slightly below the late liquidity window rate of 12.25%.
  • If the CBRT limits ON repo funding further, the average repo rate could approach 12.25%.
  • The CBRT may wait for inflation to exceed 12% in November before tightening liquidity, which could lead to further pressure on the TRY.

• Currency Performance:

  • The TRY weakened significantly on Friday, with USDTRY approaching 3.90, and underperforming a basket of 16 EM peers by 1.7%.
  • The 10Y bond yield increased by 35bp to a historic high of 12.25%.
  • The REER declined by 3% to 87.5 in October, matching its low from January.
  • This decline suggests weakness in the TRY and highlights the need for CBRT intervention.

Key Financial Instruments and Market Data

• Spot FX Rates:

  • USDTRY: 3.8774
  • EURTRY: 4.5037
  • BASKET (50% USDTRY + 50% EURTRY): 4.1903

• Forward Implied and XCCY Swap Rates:

  • 1m USDTRY: 12.30
  • 3m USDTRY: 12.74
  • 6m USDTRY: 13.17
  • 1Y USDTRY: 13.68
  • 2Y USDTRY: 13.34
  • ATM vols:
    • 1m: 13.89
    • 3m: 14.05
    • 1Y: 14.68

• Local Bonds:

  • 2Y: Price 13.29, Yield 3.68%
  • 5Y: Price 12.77, Yield 5.30%
  • 10Y: Price 12.25, Yield 6.01%

• Sovereign Bonds:

  • 10Y (17.02.2045): Price 105.3, Yield 6.20%

• Corporate Bonds:

  • Isctr 2021: Price 100.5, Yield 5.23%
  • Garanti 2022: Price 103.5, Yield 4.44%
  • Akbank 2025: Price 99.0, Yield 5.29%

Market Outlook and Risks

• S&P Rating:
  Turkey's sovereign rating was left unchanged at BB with a negative outlook, which is one notch below Moody's and Fitch.

• Global Risk Sentiment:
  The global risk sentiment remains under pressure due to developments in Saudi Arabia.

• BRSA Measures:
  The BRSA took some measures over the weekend that eased liquidity constraints for local banks, which is considered a financial easing measure.

• Market Risks:

  • The TRY is under significant pressure due to political tensions (e.g., the Zarrab case in the US).
  • The CBRT's inaction could lead to further weakness in the currency.
  • High volatility is expected in the markets, especially for fixed income and ETFs.
  • Options and ETFs carry high risk and are suitable only for sophisticated investors.
  • There is a potential for conflicts of interest due to BNP Paribas' involvement in investment banking, underwriting, and advisory services.

Legal Notice

• This document is non-independent research and is intended for Relevant Persons.
• It does not constitute investment research under MiFID.
• It is not investment advice and does not guarantee accuracy or completeness.
• BNP Paribas may have financial interests in the securities or companies mentioned.
• The information and opinions are subject to change without notice.
• Indicative prices are based on internal models and may vary significantly from market prices.
• Simulated performance is provided for illustrative purposes only and does not reflect actual market conditions.
• Transactions based on this document may be subject to legal, tax, and other considerations.
• The document is strictly confidential and not to be distributed without prior written consent.

Contacts

• Wike Groenenberg: Head of Emerging Markets Research, CEEMEA & APAC, London, +44 20 7595 8746
• Marcelo Carvalho: Head of Emerging Markets Research, Latam, Sao Paulo, +55 11 3841 3418
• Piotr Chwiejczak: FX & IR CEEMEA Strategist, London, +44 20 7595 8715
• Sai Ulluri: FX & IR CEEMEA Strategist, London, +44 20 7595 1872
• Erkin İşkı, CFA: FX & IR CEEMEA Strategist, Istanbul, +90 216 635 2987
• Mirza Baig: Head of FX & IR Asia Strategy, Singapore, +65 6210 3262
• Altaz Daga: AU/NZ IR Strategist, Singapore, +65 6210 4994
• Dawn Kwa: Asia Graduate, Singapore, +65 6210 3263
• Kun Shan: China Strategist, Shanghai, +86 21 2896 2773
• Tianhe Ji: China Strategist, Shanghai, +86 21 2896 2785
• Gabriel Gersztein: Head FX & IR Latam Strategy, Sao Paulo, +55 11 3841 3421
• Samuel Castro: FX & IR Latam Strategist, Sao Paulo, +55 11 3841 3492
• Gustavo Mendonca: FX & IR Latam Strategist, Sao Paulo, +55 11 3841 3445

Disclaimer

• The document is for informational purposes only and not intended for public use.
• No liability is accepted for any loss or damage arising from reliance on the document.
• Performance data is based on simulations and not actual results.
• Conflicts of interest may exist due to BNP Paribas' investment banking activities.
• Options and ETFs are complex instruments with high risk and suitable only for sophisticated investors.
• Securities may not be eligible for sale in all jurisdictions or to certain investors.
• Back-testing and simulated performance may not reflect real-world factors like liquidity constraints and transaction costs.
• Indicative prices are not actual transaction terms and may vary.
• No prospectus or investment advice is provided in this document.
• Legal and tax considerations should be consulted with independent advisors.
• The document is not a public offering and is intended for professional clients only.