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EM STRATEGY DAILY Summary - 12 July 2018

Core Content Overview

This document is a summary of emerging markets (EM) strategy insights and market updates from BNP Paribas for 12 July 2018. It covers key central bank decisions, currency movements, and policy changes in various EM regions, along with contact information for strategists and legal disclaimers regarding the nature of the content.

Key Market Updates

Bank of Korea

• Policy Decision: Kept interest rates on hold, with one dissenter suggesting a rate hike.
• Economic Outlook:
  • Downgraded 2018 GDP forecast from 3.0% to 2.9%.
  • Job market remains sluggish, and economic growth may be affected by near-term uncertainty.
  • Exports are expected to remain resilient, and inflation is projected to gradually increase toward the 2% target in 4Q18.
• Market Response:
  • 2y KRW NDIRS rallied 6bps.
  • FRAs are pricing about one rate hike over the next year, which is considered fair given current circumstances.

Turkey (USDTRY)

• Currency Movement: Reached an all-time high of around 4.97, driven by comments from President Erdogan suggesting potential rate cuts.
• Economic Context:
  • May Current Account deficit widened to USD -5.9bn (vs. USD -5.4bn in April).
  • Higher inflation pressures suggest a Taylor rule approach would require a 100bp rate increase on 24 July.
• Central Bank Response:
  • Under the simplified monetary framework, the central bank may provide liquidity via overnight channels at 19.25%, 125bp above the 1-week repo rate.
  • This is more likely if USDTRY rises above 5.00.
• Market Expectations:
  • Market is pricing continuation of expansionary fiscal policy.
  • Clear signals of a more balanced policy could ease concerns about inflation and external balances.

Argentina

• Policy Decision: Central Bank (BCRA) held rates stable at 40% on 11 July, as widely expected.
• Policy Changes:
  • Introduced a new monetary policy framework.
  • Now monitors growth in monetary aggregates (M0).
  • Publishes voting outcomes and reduces meeting frequency from every 2 weeks to monthly.
• Additional Information:
  • For more details, refer to "Argentina's central bank: Liquidity control".

Key Strategists and Contacts

Legal Notice

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• Indicative prices are not actual transaction terms and are based on internal models or available sources.
• Performance data may include back-testing and is for illustrative purposes only.
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Disclaimer

• No investment, financial, legal, or tax advice is provided.
• Past performance is not indicative of future results.
• Simulated performance may not reflect real-world factors like liquidity constraints and transaction costs.
• The document is for informational purposes only and is subject to change.

Regulatory Information

• The document is produced by BNP Paribas and is intended for professional clients and eligible counterparties.
• U.S. Disclosures:
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Additional Resources

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• Bloomberg Research Codes:
  • Fixed Income Research: BPFR
  • G10 Interest Rate Research: BPBS
  • Emerging Markets Research: BPFR
  • Market Economics: BPEC