egypt: strong macro backdrop, attractive carry...basket/rub short 17-sep 35.48 34.40 36.01 brl/mxn...

Macro Commodities Forex Rates Equity Credit Derivatives

17 September 201017 September 201017 September 201017 September 2010

Fixed Income & Forex Important Notice: The circumstances in which this publication has been produced are such that it is not appropriate to characterise it as independent investment research as referred to in European MIF directive and that it should be treated as a marketing material even if it contains a research recommendation

Emerging Markets Weekly

www.sgresearch.com

Egypt: strong macro backdrop, attractive carry

■ Editorial

Egypt�s growth performance has been strong despite a challenging

global environment. We do not see any change in monetary policy for

the time being. FX: Our forecast is for USD/EGP to close the year at

5.70 and then gradually appreciate through next year to reach 5.40 in

December 2011. On rates, we prefer T-bills over NDF implied yields.

Egyptian T-bills also look attractive versus CEEMEA peers.

■ FX trade summary

We got stopped out on our long RUB position following the sharp

drop of the RUB in the past few days. We nonetheless maintain a

bullish view on the RUB and re-enter a recommendation of going

long against the basket. We entered a short 3 month NDF BRL-MXN

recommendation, which reflects our valuation assessment that

favours the MXN, together with a view that Mexico�s macro balance

of risks may turn positive going forward. On the BRL side, we see

little room for further BRL appreciation in the period ahead, given the

line in the sand set at 1.70 by the central bank.

■ FI trade summary

Hungary: Look to pay 2y IRS on dips below 6.05. Czech Republic:

Maintain long CZGB3.4 9/15 in ASW. Poland: Maintain 2y5y IRS

flattener and see further tightening in ASW for local bonds.

■ FX technical analysis

The 25.02 pullback level should cap the upside and force EUR/CZK

to head towards the October 2008 low of 23.70 and the July 2008

low of 22.89. USD/ZAR should decline at least to the lower end of the

tentative declining channel, coming at 6.89 this week (-0.04/week).

EGP flattening out going forwardEGP flattening out going forwardEGP flattening out going forwardEGP flattening out going forward

5.25

5.30

5.35

5.40

5.45

5.50

5.55

5.60

5.65

5.70

5.75

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10

USD-EGP

Source: SG Cross Asset Research, Bloomberg

ThreeThreeThreeThree----month CEEMEA T bill yield comparisonmonth CEEMEA T bill yield comparisonmonth CEEMEA T bill yield comparisonmonth CEEMEA T bill yield comparison

1 2 3 4 5 6 7 8 9

CZK (A1/A+/AA-)

ILS (A1/AA-/A+)

PLN (A2/A/A)

HUF (Baa1/BBB-/BBB+)

ZAR (A3/A+/A)

TRY (Ba2/BB+/BB+)

EGP (Ba1/BBB-/BBB-)*

%


ContentsContentsContentsContents View and TrView and TrView and TrView and Trade Summaryade Summaryade Summaryade Summary EM Research TeamEM Research TeamEM Research TeamEM Research Team

View and Trade Summary 2 09090909/0/0/0/09999/10/10/10/10 16161616/0/0/0/09999/10/10/10/10 Coming weekComing weekComing weekComing week Coming monthComing monthComing monthComing month Benoit AnneBenoit AnneBenoit AnneBenoit Anne (44) 20 7676 7622

Weekly Calendar 4 EUR/PLNEUR/PLNEUR/PLNEUR/PLN 3.9400 3.9534 � � Gaëlle BlanGaëlle BlanGaëlle BlanGaëlle Blanchardchardchardchard (44) 20 7676 7439

Central Bank Watch 7 EUR/HUFEUR/HUFEUR/HUFEUR/HUF 284.91 283.17 � � Murat ToprakMurat ToprakMurat ToprakMurat Toprak (44) 20 7676 7491

Editorial 8 EUR/CZKEUR/CZKEUR/CZKEUR/CZK 24.720 24.735 � � Esther LawEsther LawEsther LawEsther Law (44) 20 7676 7396

FX Strategy 10 USD/TRYUSD/TRYUSD/TRYUSD/TRY 1.5120 1.4955 � � Jan VejmelekJan VejmelekJan VejmelekJan Vejmelek (420) 2 2200 8568

Technical Analysis 12 USD/RUBUSD/RUBUSD/RUBUSD/RUB 30.867 31.160 � � AnneAnneAnneAnne----Francoise BlüherFrancoise BlüherFrancoise BlüherFrancoise Blüher (420) 2 2200 8524

FX Quantsight 13 USD/BRLUSD/BRLUSD/BRLUSD/BRL 1.7203 1.7118 � � Jiri SkoJiri SkoJiri SkoJiri Skopppp (420) 2 2200 8569

Fixed Income Strategy 15 USD/MXNUSD/MXNUSD/MXNUSD/MXN 13.051 12.860 � � Alejandro CuadradoAlejandro CuadradoAlejandro CuadradoAlejandro Cuadrado (1) 212 278 7313

Issuance Calendar 18 PLN 5YPLN 5YPLN 5YPLN 5Y 4.95 4.90 � � Jaroslaw JaneckiJaroslaw JaneckiJaroslaw JaneckiJaroslaw Janecki (48) 2 2528 4162

Rates Quantsight 20 HUF 5YHUF 5YHUF 5YHUF 5Y 6.51 6.33 � � Vladimir KolychevVladimir KolychevVladimir KolychevVladimir Kolychev (7495) 725 5637

Macro Focus – Czech Republic 21 CZK 5YCZK 5YCZK 5YCZK 5Y 2.02 2.12 � �

Economic Data Preview 22


17 September 201017 September 201017 September 201017 September 2010 2222

FX Views and RecommendationsFX Views and RecommendationsFX Views and RecommendationsFX Views and Recommendations

■ Like many investors, we got stopped out yesterday on the long RUB position that we had been recommending since 7 July. We initiated our recommendation with an entry level of 34.71 for the RUB vs. the basket, but our stop of 35.31 was hit on Thursday. We nonetheless maintain a bullish view on the RUB and believe that the current weakness is only temporary. On this basis, we re-enter a recommendation of going long RUB against the dual basket with an entry level of 35.48, target of 34.40 and stop of 36.01.

■ We entered on Tuesday a short 3 month NDF BRL-MXN recommendation with a target of 7.25 for the spot equivalent and a stop of 7.65. This trade recommendation reflects our valuation assessment that favours the MXN, together with a view that Mexico�s macro balance of risks may turn positive going forward. On the BRL side, we see little room for further BRL appreciation in the period ahead, given the line in the sand set at 1.70 by the central bank.

■ Our short USD/KRW recorded only modest gains this week following the Japanese intervention in USD/JPY. We expect the KRW appreciation to resume though, as the CNY is strengthening and the South Korean central bank will continue to normalise monetary policy.

FX spot strategies

CrossCrossCrossCross P osi t ionP osi t ionP osi t ionP osi t ion DateDateDateDate En t ryEn t ryEn t ryEn t ry Targe tTarge tTarge tTarge t S topS topS topS top Cu rre n tCu rre n tCu rre n tCu rre n t P /L we e k *P /L we e k *P /L we e k *P /L we e k * P /L to talP /L to talP /L to talP /L to tal

Ne w posi t ion s th is we e kNe w posi t ion s th is we e kNe w posi t ion s th is we e kNe w posi t ion s th is we e k

Baske t/RUBBaske t/RUBBaske t/RUBBaske t/RUB short 17-Sep 35.48 34.40 36.01

BRL/MXNBRL/MXNBRL/MXNBRL/MXN short 14-Sep 7.52 7.25 7.65 7.47 0.66% 0.66%

Old posi t ion sO ld posi t ion sO ld posi t ion sO ld posi t ion s

US D/KRWUS D/KRWUS D/KRWUS D/KRW short 28-Jul 1184 1145 1210 1164 0.20% 1.73%

P osi t ion s close d P osi t ion s close d P osi t ion s close d P osi t ion s close d

Baske t/RUBBaske t/RUBBaske t/RUBBaske t/RUB short 07-Jul 34.71 33.50 35.31 35.31 -1.96% -1.73%

* since last Thursday close



FFFFIIII Views and RecommendationsViews and RecommendationsViews and RecommendationsViews and Recommendations

■ Hungary: Look to pay 2y IRS on dips below 6.05%. HUF local rates have continued to move lower since we closed our 2y IRS payer position at 6.25% on 10 September, with the 2y IRS reaching a recent low of 6.01% before rebounding back to 6.09% now. We think this 6.01% - the 200d MA � is likely to act as a strong resistance from a

technical perspective. We look to re-open a 2y IRS payer position below 6.05% to position for a potential blow-up of risk in Hungary ahead of the election. The carry is still negative for paying 2y IRS. Thus we recommend this as a short term tactical play. Our cautious view on Hungary was also echoed by Moody�s and S&P comments earlier this week that the government�s commitments to cut the budget deficit to below 3.8% next year are not enough to remove Hungary from its negative credit outlook.

■ Czech Republic: Maintain long CZGB3.4 9/15 in ASW. Demand at the CZGB 5 4/19 auction on 15 September

turned out much weaker than we expected, with a bid/cover of only 1.35 (compared with 3.38 at the CZGB2.8 9/13 auction on 8 September). However, we believe that this is just a temporary phenomenon. First, foreign investors may have covered their demand in the recent EUR2bn CZECH3.625 4/21 issue, which offers a higher ASW than the domestic bond with similar maturity. Second, not only will gross issuance come down markedly in Q410, but net issuance will turn sharply negative (CZK 62bn worth will mature). Thirdly, the fundamental outlook for demand and supply improved notably, helped by the government�s reform plans. Lastly, S&P as well as Moody�s signalled that they may raise the Czech Republic�s rating. We believe this upgrade may come as early as next year. As a result we maintain our long CZGB3.4 9/15 in ASW, which we opened at 56bp with target of 20bp (actually trading around +40bp).

■ Poland: Maintain 2y5y IRS flattener. Although this position has not made much progress in the last week, we still

believe in the rationale of our inflation and monetary policy outlook. On local bonds, we see potential for further tightening in ASW on lower supply outlook, helped by the euorbond issuance this week. We like WS0922 from a relative value perspective.

P osi t ionP osi t ionP osi t ionP osi t ion DateDateDateDate En tryEn t ryEn t ryEn t ry Un i tUn i tUn i tUn i t Targe tTarge tTarge tTarge t S topS topS topS top Cu rre n tCu rre n tCu rre n tCu rre n t P /L we e k P /L we e k P /L we e k P /L we e k (bp)*

P /L to tal P /L to tal P /L to tal P /L to tal (bp)

Est . 3m Est . 3m Est . 3m Est . 3m carry (bp)carry (bp)carry (bp)carry (bp)

Exist in g posi t ion sExist in g posi t ion sExist in g posi t ion sExist in g posi t ion s

MXN 3s10s T IIE flat te n e rMXN 3s10s T IIE flat te n e rMXN 3s10s T IIE flat te n e rMXN 3s10s T IIE flat te n e r 9 Aug 122 bp 80 132 105 1 17 -12

Bu y CZG B3.4 9/15 in AS WBu y CZG B3.4 9/15 in AS WBu y CZG B3.4 9/15 in AS WBu y CZG B3.4 9/15 in AS W 22 Jul 56 bp 20 80 40 1 16 --

RUB 6M5Y CCS flat te n e rRUB 6M5Y CCS flat te n e rRUB 6M5Y CCS flat te n e rRUB 6M5Y CCS flat te n e r 7 Jul 275 bp 150 292 260 7 15 -30

RO N 2s5s CCS ste e pe n e rRO N 2s5s CCS ste e pe n e rRO N 2s5s CCS ste e pe n e rRO N 2s5s CCS ste e pe n e r 2 Jul -20 bp 50 -40 0 0 20 2

P LN 2s5s IRS flat te n e r P LN 2s5s IRS flat te n e r P LN 2s5s IRS flat te n e r P LN 2s5s IRS flat te n e r (No min al rat io : 1000:432)(No min al rat io : 1000:432)(No min al rat io : 1000:432)(No min al rat io : 1000:432)

26 Jun 62 bp 5 75 35 0 28 -7

P ol ish bu t te rfl y: bu y 0414 vs se l l P o l ish bu t te rfl y: bu y 0414 vs se l l P o l ish bu t te rfl y: bu y 0414 vs se l l P o l ish bu t te rfl y: bu y 0414 vs se l l

0412 & 1015 we igh t 1000:970:372)0412 & 1015 we igh t 1000:970:372)0412 & 1015 we igh t 1000:970:372)0412 & 1015 we igh t 1000:970:372)13 May 25 bp 5 31 18 1 7 -3

Bu y EUR10m P O LAND5.25 1/25 at Bu y EUR10m P O LAND5.25 1/25 at Bu y EUR10m P O LAND5.25 1/25 at Bu y EUR10m P O LAND5.25 1/25 at AS W vs EUR23m 5y CDSAS W vs EUR23m 5y CDSAS W vs EUR23m 5y CDSAS W vs EUR23m 5y CDS

5 May 45 bp 0 60 28 9 17 -7

P osi t ion s close d P osi t ion s close d P osi t ion s close d P osi t ion s close d Entry date

Entry Unit Target Stop Closed level

Closed date

P /L to tal P /L to tal P /L to tal P /L to tal (bp)(bp)(bp)(bp)

P ay HUF 2y IRS P ay HUF 2y IRS P ay HUF 2y IRS P ay HUF 2y IRS 2 Sep 6.40 % 7.00 6.25 6.25 10 Sep -15 -15

P ay CZK 6x9 FRAP ay CZK 6x9 FRAP ay CZK 6x9 FRAP ay CZK 6x9 FRA 17 Jun 1.31 % 1.55 1.15 1.23 01 Sep -8 --

Re ce ive P LN 2s5s10s P CA barbe l l Re ce ive P LN 2s5s10s P CA barbe l l Re ce ive P LN 2s5s10s P CA barbe l l Re ce ive P LN 2s5s10s P CA barbe l l

Rat io : 0.5:2:1.8 fo r 2s:5s:10s. Rat io : 0.5:2:1.8 fo r 2s:5s:10s. Rat io : 0.5:2:1.8 fo r 2s:5s:10s. Rat io : 0.5:2:1.8 fo r 2s:5s:10s. (No min al rat io : (No min al rat io : (No min al rat io : (No min al rat io :

CZK100m:CZK100m:CZK47m) CZK100m:CZK100m:CZK47m) CZK100m:CZK100m:CZK47m) CZK100m:CZK100m:CZK47m)

12 Aug -150 bp -175 -140 -140 19 Aug 10 0.5

Re ce ive CZK 2s5s10s P CA barbe l l Re ce ive CZK 2s5s10s P CA barbe l l Re ce ive CZK 2s5s10s P CA barbe l l Re ce ive CZK 2s5s10s P CA barbe l l


CZK60m:CZK100m:CZK47m)CZK60m:CZK100m:CZK47m)CZK60m:CZK100m:CZK47m)CZK60m:CZK100m:CZK47m)

6 Jul -120 bp -140 -112 -110 17 Aug -10 1

Re ce ive P LN 3s5s7s stan dard Re ce ive P LN 3s5s7s stan dard Re ce ive P LN 3s5s7s stan dard Re ce ive P LN 3s5s7s stan dard

barbe l l barbe l l barbe l l barbe l l 12 Nov 25 bp 10 30 15 13 Aug 10 0

P ay ZAR 2s5s10s P CA barbe l l P ay ZAR 2s5s10s P CA barbe l l P ay ZAR 2s5s10s P CA barbe l l P ay ZAR 2s5s10s P CA barbe l l


$ 56m:$ 100m:$ 46m)$ 56m:$ 100m:$ 46m)$ 56m:$ 100m:$ 46m)$ 56m:$ 100m:$ 46m)

31 Mar -25 bp 3 -32 -32 12 Aug -7 -4

P ay MXN 2s5s10s stan dard barbe l l P ay MXN 2s5s10s stan dard barbe l l P ay MXN 2s5s10s stan dard barbe l l P ay MXN 2s5s10s stan dard barbe l l 9 Jul 20 bp 40 10 10 09 Aug -10 -4

P ay HUF 1y1y fo rwardP ay HUF 1y1y fo rwardP ay HUF 1y1y fo rwardP ay HUF 1y1y fo rward 3 Jun 5.78 % 6.20 6.55 6.55 03 Aug 77 -10

* since last publication ** P/L calculated without carry

Source: SG Cross Asset Research, Bloomberg, Reuters



Events and dataEvents and dataEvents and dataEvents and data EMEAEMEAEMEAEMEA

During the weekDuring the weekDuring the weekDuring the week PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

Israel Money Supply (YoY) AUG 9.90% na na

Russia Disposable Income AUG 5.20% na 5.90%

Real Wages (YoY) AUG 6.80% na 6.90%

Retail Sales (Real) (MoM) AUG 3.00% na 2.10%

Retail Sales (Real) (YoY) AUG 6.60% na 6.50% Unemployment Rate (%) AUG 7.00% na 7.00%

Investment In Productive Capac AUG 0.80% na 0.60%

South Africa Leading Indicator JUL 128.2 na na

Monday 20Monday 20Monday 20Monday 20----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForeSG ForeSG ForeSG Forecastcastcastcast ConsensusConsensusConsensusConsensus

Israel Leading 'S' Indicator (MoM) AUG 0.20% na na

Tuesday 21Tuesday 21Tuesday 21Tuesday 21----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

Israel Unemployment Rate JUL na na na

12:00 Poland Core Inflation YoY AUG 1.20% 1.30% 1.20% 12:00 Core Inflation MoM AUG 0.10% 0.10% 0.00%

Wednesday 22Wednesday 22Wednesday 22Wednesday 22----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

7:00 Hungary Retail Trade (IA) (YoY) JUL -4.60% na na 7:00 South Africa Current Account Balance 2Q -116.1B na na 7:00 Current Account % GDP 2Q -4.60% na na 9:30

Retail Sales MoM JUL 1.80% na na

9:30 Retail Sales Constant (YoY) JUL 7.40% na na

Thursday 23Thursday 23Thursday 23Thursday 23----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

Israel National Holiday

Romania Money Supply (YoY) AUG 5.80% na na

11:00 Czech Republic Repo Rate Announcement Sep.23 0.75% 0.75% 0.75%

Friday 24Friday 24Friday 24Friday 24----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

South Africa National Holiday 7:00 Czech Republic Consumer Confidence SEP -11.8 na na 7:00

Consumer & Business Confidence SEP 7 na na

7:00

Business Confidence SEP 11.7 na na 8:00 Poland Unemployment Rate AUG 11.40% 11.20% 11.30% 8:00

Retail Sales (YoY) AUG 3.90% 3.50% 5.30%

8:00

Retail Sales (MoM) AUG 3.20% -2.90% -2.80% 13:30 Turkey Industrial Confidence SEP 111 na na 13:30 Capacity Utilization SEP 73.40% na na



Latin AmericaLatin AmericaLatin AmericaLatin America

During the weekDuring the weekDuring the weekDuring the week PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

Argentina Budget Balance AUG 3913.3M na na

Monday 20Monday 20Monday 20Monday 20----SepSepSepSep----2010 2010 2010 2010 (GMT)(GMT)(GMT)(GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

Chile National Holiday

Argentina Consumer Confidence SEP 50.37 na na

14:00 Brazil Trade Balance (FOB) - Weekly Sep.19 $159M na na

Tuesday 21Tuesday 21Tuesday 21Tuesday 21----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast CCCConsensusonsensusonsensusonsensus

11:00 Brazil FGV Preview Inflation IGP-M Sep.20 na na 0.74% 12:00

IBGE CPI IPCA-15 (MoM) SEP -0.05% 0.24% 0.23%

13:30 Foreign Investment AUG $2643M na na 13:30

Current Account - Monthly AUG -$4499M -$2700M na

14:00 Mexico Retail Sales (INEGI) JUL 1.50% na 2.00%

Wednesday 22Wednesday 22Wednesday 22Wednesday 22----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

11:00 Brazil FGV Consumer Confidence SEP 120.8 na na 14:00 Mexico Aggregate Supply & Demand 2Q 7.60% na 12.10%

Thursday 23Thursday 23Thursday 23Thursday 23----SepSepSepSep----2010201020102010 (GMT)(GMT)(GMT)(GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

11:00 Brazil FGV CPI IPC-S Sep.22 na na na 12:00 Unemployment Rate AUG 6.90% 7.00% na 14:00 Mexico Unemployment Rate AUG 5.70% 5.67% 5.60% 14:00

Trade Balance AUG P -1036M -262M -546M

14:00 Mexico BI-Weekly CPI Sep.15 0.16% 0.49% 0.48% 14:00

Bi-Weekly Core CPI Sep.15 0.09% 0.38% 0.48%

16:00 Colombia GDP (YoY) 2Q 4.40% 5.70% 5.00% 19:00 Argentina Trade Balance AUG $883M na na

Friday 24Friday 24Friday 24Friday 24----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT)

PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsenConsenConsenConsensussussussus

Colombia Overnight Lending Rate Sep.24 3.00% 3.00% 3.00%

8:00 Brazil FIPE CPI - Weekly Sep.22 na na na 14:00 Mexico Overnight Rate Sep.24 4.50% 4.50% 4.50% 19:00 Argentina Economic Activity Indx MoM SA JUL -0.60% na na 19:00

Economic Activity Indx YoY NSA JUL 11.10% na na

19:00

Industrial Prod. s.a. (MoM) AUG -0.60% na na 19:00 Industrial Production YoY NSA AUG 7.60% na na



AsiaAsiaAsiaAsia

Monday 20Monday 20Monday 20Monday 20----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

7:00 Thailand Customs Trade Balance AUG -$940M na $951M 8:00 Taiwan Export Orders (YoY) AUG 18.23% na 21.27%

Tuesday 21Tuesday 21Tuesday 21Tuesday 21----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus

South Korea National Holiday

Wednesday 22Wednesday 22Wednesday 22Wednesday 22----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG SG SG SG ForecastForecastForecastForecast ConsensusConsensusConsensusConsensus

China National Holiday

Taiwan National Holiday


9:00 Malaysia CPI YoY AUG 1.90% na 2.0%

Thursday 23Thursday 23Thursday 23Thursday 23----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus



5:00 Singapore CPI (YoY) AUG 3.10% na 3.20% 8:00 Taiwan Commercial Sales (YoY) AUG 9.08% na na 8:00

Industrial Production (YoY) AUG 20.70% na 23.40%

8:00 Unemployment Rate - sa AUG 5.17% na na

Friday 24Friday 24Friday 24Friday 24----SepSepSepSep----2010 (GMT)2010 (GMT)2010 (GMT)2010 (GMT) PeriodPeriodPeriodPeriod PreviousPreviousPreviousPrevious SG ForecastSG ForecastSG ForecastSG Forecast ConsensusConsensusConsensusConsensus


1:35 China MNI Business Condition Survey SEP 62.16 na na 5:00 Singapore Industrial Production MoM SA AUG 1.40% na -3.00% 5:00

Industrial Production YoY AUG 9.90% na 10.20%

8:20 Taiwan Money Supply M1B Daily Avg YoY AUG 12.49% na na 8:20 Money Supply M2 Daily Avg YoY AUG 4.12% na na

Source: SG Cross Asset Research, KB, Bloomberg



Central bank watchCentral bank watchCentral bank watchCentral bank watch

Rat in g^Rat in g^Rat in g^Rat in g^ O u t lookO u t lookO u t lookO u t look Cou n tryCou n tryCou n tryCou n tryNe xt Ne xt Ne xt Ne xt

Me e t in gMe e t in gMe e t in gMe e t in gLast move (bp)Last move (bp)Last move (bp)Last move (bp)

Cu rre n t Rate Cu rre n t Rate Cu rre n t Rate Cu rre n t Rate

(%)(%)(%)(%)S G V ie wS G V ie wS G V ie wS G V ie w

W h at is price d in W h at i s price d in W h at i s price d in W h at i s price d in

(bp ove r 3m)(bp ove r 3m)(bp ove r 3m)(bp ove r 3m)

A- Stable P o landP o landP o landP o land 29 Sep 10 unchanged 3.50 We expect 50bp rate hike in Q4. 34

BBB- Negative Hu n garyHu n garyHu n garyHu n gary 27 Sep 10 unchanged 5.25 No change this year. 54

A Positive Cze ch Re p.Cze ch Re p.Cze ch Re p.Cze ch Re p. 23 Sep 10 unchanged 0.75 First rate hike in Q1/Q211 0

BB+ Stable Roman iaRoman iaRoman iaRoman ia 29 Sep 10 unchanged 6.25 No change this year, 25bps cut in Q12011. NA

BBB Stable Ru ssiaRu ssiaRu ssiaRu ssia unchanged 7.75 No change this year. NA

BB Positive Tu rke yTu rke yTu rke yTu rke y 14 Oct 10 unchanged 7.00 First rate hike at the end of Q1 2011 47

BBB+ Negative S ou th Afr icaS ou th Afr icaS ou th Afr icaS ou th Afr ica 18 Nov 10 -50 6.00 Key rate to bottom at 6.00%. -28

A Stable Israe lIsrae lIsrae lIsrae l 27 Sep 10 unchanged 1.75 We expect 2.25% by year-end. 30

BB+ Stable EgyptEgyptEgyptEgypt 04 Nov 10 unchanged 8.25 No change until March 2011 NA

BBB- Stable Brazi lBrazi lBrazi lBrazi l 20 Oct 10 unchanged 10.75 Dovish stance risks no move. The latter may be tested in Q4 as inflation trends reverse.

16

A+ Stable Ch i leCh i leCh i leCh i le 14 Oct 10 +50 2.50

Rising inflation and strong domestic push keep

BCCH on tightening mode. We expect 3.75% by

year-end.

150

BBB- Positive Co lombiaCo lombiaCo lombiaCo lombia 24 Sep 10 unchanged 3.00

Despite growth and inflation upturn, policymakers

remain dovish on potential pressures. Concerns over

global demand and COP strength risk a continued

pause through Q4.

0

BBB Stable Me xicoMe xicoMe xicoMe xico 24 Sep 10 unchanged 4.50 Lower inflation and Fed hike delay may push

Banxico to act only in 2011.0

Source: SG Cross Asset Research, KB, Bloomberg, Reut ers (as at 16 Sep 10 close.) . ̂ S&P rat ings are used

0

1

2

3

4

5

6

7

8

-10-505

1015202530354045

PLN HUF CZK ZAR ILS TRY

Ke

y Po

licy ra

tes

(%)F

RA

-p

rem

ium

(bp

)

3m 1m fwd* (LHS) 3m 2m fwd* (LHS) 3m 3m fwd* (LHS) Current base rate (RHS)



EditorialEditorialEditorialEditorial –––– Egypt: strong macro Egypt: strong macro Egypt: strong macro Egypt: strong macro backdrop, attractive carrybackdrop, attractive carrybackdrop, attractive carrybackdrop, attractive carry

Strong growth and benign macro Strong growth and benign macro Strong growth and benign macro Strong growth and benign macro risksrisksrisksrisks

� A resilient growth A resilient growth A resilient growth A resilient growth performanceperformanceperformanceperformance

Egypt’s growth performance has been strong over the past few months, despite a challenging global environment. Throughout the global financial crisis, the slowdown in Egyptian growth has been only moderate, measuring just 4.7% in 2009 according to the IMF. The last few quarters point to a rebound in activity, as illustrated by a Q1 growth figure of 5.8% (latest available data). By comparison, the trough was registered in Q4-2008, with GDP growth slowing to 4.1%. Going forward, the IMF expects economic growth to be driven mainly by increasing domestic consumption demand and production in the construction, communications and trade sectors.

GraphGraphGraphGraph 1. Rebounding economic growth1. Rebounding economic growth1. Rebounding economic growth1. Rebounding economic growth

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

%, yoy


� Inflation has softened marginally since the beginning of Inflation has softened marginally since the beginning of Inflation has softened marginally since the beginning of Inflation has softened marginally since the beginning of

the yearthe yearthe yearthe year

Inflationary pressures remain subdued, mainly due to the soft domestic demand. The latest inflation reading stands at 10.9%, compared with 13.2% in December. Overall, the central bank does not seem overly concerned about the inflation outlook, despite the recent uptick in core inflation to 8.2%.

� A central bank on hold for the time beingA central bank on hold for the time beingA central bank on hold for the time beingA central bank on hold for the time being

We do not see any change in monetary policy for the time being. The CBE may be prompted to raise its policy rate next year, however, as inflationary pressures mount. Our call is for a first hike in March, by 25bp, and overall a cumulative 100bp hike over the course of 2011.

GraphGraphGraphGraph 2.2.2.2. Moderate inflation risksModerate inflation risksModerate inflation risksModerate inflation risks

0

5

10

15

20

25

Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10

%


Our FX view: Our FX view: Our FX view: Our FX view: some stability going some stability going some stability going some stability going forwardforwardforwardforward

We do not see any major FX risks in the period ahead and the EGP should remain broadly stable at around 5.70 against the USD over the next two quarters.

In addition, some appreciation cannot be ruled out next year when capital inflows pick up further and the central bank switches to a more hawkish stance. The CBE keeps a close watch on the FX market and is likely to contain any major move. Until recently, the EGP had somewhat weakened in EUR-USD basket terms, but this weakness may now be coming to an end.

Our forecast is for EGP to close the year at 5.70 and then gradually appreciate through next year to reach 5.40 in December 2011. From a balance of payments standpoint, the trajectory of capital flows into Egypt is supportive of a stronger currency over the medium term, in our view.

GraphGraphGraphGraph 3.3.3.3. EGP flattening out going forwardEGP flattening out going forwardEGP flattening out going forwardEGP flattening out going forward

5.25

5.30

5.35

5.40

5.45

5.50

5.55

5.60

5.65

5.70

5.75

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10

USD-EGP




GrGrGrGraphaphaphaph 4444.... Capital flows on an uptrend (FDI+portfolio)Capital flows on an uptrend (FDI+portfolio)Capital flows on an uptrend (FDI+portfolio)Capital flows on an uptrend (FDI+portfolio)

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10

USDm


Our FI view: favour exposure to TOur FI view: favour exposure to TOur FI view: favour exposure to TOur FI view: favour exposure to T----billsbillsbillsbills

� External debt is low despite wide fiscal deficit External debt is low despite wide fiscal deficit External debt is low despite wide fiscal deficit External debt is low despite wide fiscal deficit

On the government deficit front, the wide structural fiscal deficit (expected at 8.4% of GDP this year) and large public debt at 71% of GDP are fortunately offset by its low level of external debt (around 17% of GDP), the large stock of official foreign exchange reserves and also the sound structure of large public debt. As pointed out by Moody’s latest credit report on Egypt on 28 July 2010, large amount of the government debt is in local currency, and owned to stable domestic creditors. This makes Egyptian local debt quite attractive compared with other CEEMEA peers which are more vulnerable externally such as Hungary.

In terms of future fiscal outlook, we expect a gradual tightening in Egypt’s fiscal deficit. According to the IMF’s latest 2010 Article IV consultation, ‘the [Egyptian] authorities’ objective of reducing the fiscal deficit to about 3% by FY2014/15 is critical to achieving private sector-led growth and reducing vulnerabilities’.

From the ratings outlook perspective, Egypt currently enjoys a stable outlook from all three key ratings agencies: Moody’s (Ba1), S&P (BB+) and Fitch (BB+) on LT foreign currency debt. The local currency debt is rated one notch better at (Ba1/ BBB-/BBB-). This stable outlook is built on Egypt’s resilience to the recent global turmoil and its robust external position. We expect this stable outlook to remain in place unless there is a sharp deterioration in the structural fiscal deficit, renewed inflation concern and deterioration in the political environment – especially in the run-up to elections in October and November 2010 and the presidential election in late 2011. While political uncertainty is likely to increase ahead of these elections, ‘the current regime is unlikely to be seriously destabilised and will continue to contain opposition and criticism from the

independent judiciary, the press and especially the Muslim Brotherhood’ according to the latest Economic Overviews from the Economist Intelligence Unit.

� Prefer TPrefer TPrefer TPrefer T----bills over NDF implied yieldsbills over NDF implied yieldsbills over NDF implied yieldsbills over NDF implied yields

Intra-market, we prefer buying T-bills to receiving NDF implied yield as the former offers a more attractive yield level, even with the NDF implied yield having backed up from the low since August. The 3-month T-bill now trades around 8.08% (using a tax rate of 15%), compared with the 3-month NDF implied yield of 6.80%. Another advantage of receiving EGP rates via holding T-bills over NDF implied yield is that the T-bills are likely to be less volatile due to FX movements.

In terms of non-resident holdings, latest data from the CBE shows that foreign customers held around 14% of total debt outstanding as at end-June 2010, having reached a peak of 16% in April. This proportion is quite low compared with CE3 peers such as Poland, Hungary and the Czech Republic, which are all above 20%. This again, bodes well for buying T-bills from a positioning perspective.

To reduce the outright risk of holding T-bills, investors can hedge by paying the NDF implied yield. This means investors are exposed to the credit spread of Egypt over 3 months.

� Egyptian Egyptian Egyptian Egyptian TTTT----bills bills bills bills also also also also looklooklooklook attractive attractive attractive attractive vs. vs. vs. vs. CEEMEA CEEMEA CEEMEA CEEMEA pepepepeersersersers

From a macro standpoint, the reduction in fiscal deficit is likely to be gradual due to the fiscal stimulus introduced during the crisis, as well as the elections ahead. That said, we see little risk of a blow-up on the financing side. This, combined with a steady policy outlook in the near term – we expect no rate hike until March 2011 - and the relatively favourable macroeconomic outlook discussed above, makes Egyptian T-bills quite attractive compared with other CEEMEA peers, even Turkey and South Africa. Adjusted for the 15% tax (for UK and French investors), the benchmark 3-month T-bill still yields around 8.08%, compared with 5.44% and 7.10% for a 3-month T-bill in Hungary and Turkey respectively (see Graph 5).

(see also ‘Egypt as an alternative to CEEMEA local rates’ in Emerging Weekly on 29 January 2010)

GraphGraphGraphGraph 5555.... ThreeThreeThreeThree----month CEEMEA T bill yield comparisonmonth CEEMEA T bill yield comparisonmonth CEEMEA T bill yield comparisonmonth CEEMEA T bill yield comparison

1 2 3 4 5 6 7 8 9

CZK (A1/A+/AA-)

ILS (A1/AA-/A+)

PLN (A2/A/A)

HUF (Baa1/BBB-/BBB+)

ZAR (A3/A+/A)

TRY (Ba2/BB+/BB+)

EGP (Ba1/BBB-/BBB-)*

%

Source: SG Cross Asset Research, Bloomberg. * 15% tax is assumed here.

[email protected]@[email protected]@sgcib.com [email protected]@[email protected]@sgcib.com



FX FX FX FX StrategyStrategyStrategyStrategy

EUR/PLNEUR/PLNEUR/PLNEUR/PLN 1 week view1 week view1 week view1 week view �� 1 month view1 month view1 month view1 month view ��

EUR/PLN moving above EUR/PLN moving above EUR/PLN moving above EUR/PLN moving above 4.00 4.00 4.00 4.00 would provide would provide would provide would provide

opportunity opportunity opportunity opportunity to enter to enter to enter to enter tactical long PLN positiontactical long PLN positiontactical long PLN positiontactical long PLN position

EUR/PLN has been trading in a 3.92-3.96 range in the past two weeks but lacks momentum to decisively break lower. Domestic data continue to comfort the recovery scenario, with stronger than expected wage growth and still rising employment (released this week) boding well for household consumption going forward. Comments from MPC members on monetary policy continue to show diverging opinions (especially following the lower than expected CPI data (2.0% y/y vs consensus for 2.1%), but we think there will be a majority in favour of a rate hike in October.

FX-wise, we expect the PLN to remain fairly stable to slightly stronger vs EUR in the next three to six months, as we see no momentum for risk appetite. Concerns about global economic growth are likely to keep risk aversion alive, preventing fast PLN gains despite the strong domestic macro fundamentals. The PLN’s appreciating trend should resume after Q1 2011. In the short term, we would take the opportunity of EUR/PLN moving above 4.00 to enter a tactical long PLN position, targeting the lower end of the recent trading range.

EUR/CZKEUR/CZKEUR/CZKEUR/CZK 1 week view1 week view1 week view1 week view �� 1 month view1 month view1 month view1 month view ��

TheTheTheThe EUR/CZK hit its 22 EUR/CZK hit its 22 EUR/CZK hit its 22 EUR/CZK hit its 22 month lowmonth lowmonth lowmonth low

The CZK is stronger, but The CZK is stronger, but The CZK is stronger, but The CZK is stronger, but not a problem for not a problem for not a problem for not a problem for ccccentral entral entral entral

bankersbankersbankersbankers

After being locked in a tight range of 24.60-24.90 for over two months, the EUR/CZK cross finally dropped this week, breaking through the 24.61 support level to touch 24.50 - its lowest level since November 2008. Market players clearly appreciate the absence of considerable economic imbalances and an improvement in the fiscal outlook based on the government’s costs-saving efforts and planned reform of public finances. It is true that the C/A deficit for July was a great disappointment, reaching its lowest level since August 2007. Yet this was mainly due to profit repatriation. Nevertheless, the C/A deficit should remain at -1.0% of GDP this year and worsen slightly to -1.6% next year. These are safe levels as they are being covered by EU fund flows and FDI inflows. What should drive the EUR/CZK higher in the medium-term is risk aversion.

The CNB will hold its monetary policy meeting on Thursday. In line with consensus, we do not expect any change in interest rates. The newly-formed group of less dovish (or even hawkish) board members is intriguing and market players will be keen to gain insight into how strong they will prove to be. As regards FX, the crown seems to be only moderately overvalued and is not threatening the economy. We do not expect the CNB to make any strong comment against the strengthening CZK. Indeed, CNB governor, Miroslav Singer said this week that exporters had benefited from a weaker crown at the height of the financial crisis and the latest appreciation does not seem to be a bigger problem.

Basket/RUBBasket/RUBBasket/RUBBasket/RUB 1 week view1 week view1 week view1 week view �� 1 month view1 month view1 month view1 month view ��

NNNNothing at the othing at the othing at the othing at the

fundamental level canfundamental level canfundamental level canfundamental level can explain the 2.4% explain the 2.4% explain the 2.4% explain the 2.4%

depreciation of the RUB depreciation of the RUB depreciation of the RUB depreciation of the RUB vs basketvs basketvs basketvs basket over the past over the past over the past over the past

few few few few days days days days

We maintain a bullish We maintain a bullish We maintain a bullish We maintain a bullish view on the RUB and view on the RUB and view on the RUB and view on the RUB and

believe that the current believe that the current believe that the current believe that the current weakness is only weakness is only weakness is only weakness is only

temporary.temporary.temporary.temporary.

We judge that there is nothing at the fundamental level that can explain the 2.4% depreciation in basket terms over the past few days. On the macro front, the growth picture remains robust, as illustrated by the latest industrial output number released on Wednesday that showed a 7% yoy growth, well above consensus expectations. At the same time, we see no concern about the external financing picture and the schedule of debt amortisation repayments does not suggest any risk going forward.

Given that we are comfortable with the macro backdrop, we believe that the trigger for the recent sell-off was essentially technical. It is quite likely that some international investors may have taken the market by surprise and started a heavy process of stop-lossing. If this technical driver is confirmed, then we think that the recent move can only be temporary. As the positioning gets cleaner with long RUB investors forced to exit, a new round of long RUB positions may re-emerge once the dust settles.

We maintain a bullish view on the RUB and believe that the current weakness is only temporary. On this basis, we re-enter a formal recommendation of going long RUB against the dual basket (as our previous long position has been stopped out) with an entry level of 35.48, target of 34.40 and stop of 36.01.

USD/TRYUSD/TRYUSD/TRYUSD/TRY 1 week view1 week view1 week view1 week view �� 1 month view1 month view1 month view1 month view ��

The TRY has been recovering vs USD since the beginning of the month, on the back of improved risk sentiment on global markets and thanks to the clear results of the referendum



Positive global market Positive global market Positive global market Positive global market sentiment supports TRY sentiment supports TRY sentiment supports TRY sentiment supports TRY

but risks building upbut risks building upbut risks building upbut risks building up

on constitutional reforms, which reinforced the government and AKP’s position.

The CBRT yesterday left its benchmark repo rate unchanged at 7%, as widely expected. The central bank also decided to cut both the overnight borrowing rate and lending rates by 25bp, to 6.25% and 8.75% respectively. This decision - qualified as a technical adjustment in line with the bank’s announced exit strategy - highlights the CBRT’s persistent dovish stance. The accompanying statement reiterated that it was necessary to keep policy rates at current levels for some time and that core inflation remained in line with mid-term targets. The CBRT is clearly expecting some slowdown in economic growth going forward and does not fear inflationary pressures. We see a risk that market perception may turn less favourable for TRY if the CBRT is perceived as lagging on the inflation front.

We do not expect a decisive break from 1.4850 unless there is much stronger momentum in global risk appetite (which is not our scenario), and see a gradual weakening of the TRY to 1.55 by the end of the year. Besides monetary policy, fiscal developments will also be key for the TRY.

[email protected]@[email protected]@sgcib.com


[email protected][email protected][email protected][email protected]



Technical analysis

EUR/CZK: EUR/CZK: EUR/CZK: EUR/CZK: ST pause before extension of MT downtrendST pause before extension of MT downtrendST pause before extension of MT downtrendST pause before extension of MT downtrend

�� EUR/CZKEUR/CZKEUR/CZKEUR/CZK ---- The 25.02 pullbackThe 25.02 pullbackThe 25.02 pullbackThe 25.02 pullback level level level level shouldshouldshouldshould cap the upside and cap the upside and cap the upside and cap the upside and force EUR/CZK to head towards force EUR/CZK to head towards force EUR/CZK to head towards force EUR/CZK to head towards the October 2008 low of 23.70 the October 2008 low of 23.70 the October 2008 low of 23.70 the October 2008 low of 23.70 and the July 2008 low of 22.89.and the July 2008 low of 22.89.and the July 2008 low of 22.89.and the July 2008 low of 22.89.

EUR/CZK has recovered after breaching the early August low of 24.61, but this up-move is probably corrective.

We expect the 25.02 pullback level to cap the upside and force EUR/CZK to head towards the October 2008 low of 23.70 and the July 2008 low of 22.89.

24.41 and 23.92 should be the main steps on the way.

Written at 7:00am GMT on 17 September

3333rdrdrdrd supportsupportsupportsupport 2222ndndndnd supportsupportsupportsupport 1111st st st st supportsupportsupportsupport LastLastLastLast 1111stststst resistanceresistanceresistanceresistance 2222ndndndnd resistanceresistanceresistanceresistance 3333rdrdrdrd resistanceresistanceresistanceresistance

23.92 24.41 24.51 24.68 24.77 24.85 25.02

USD/ZARUSD/ZARUSD/ZARUSD/ZAR: : : : bearish bearish bearish bearish signalsignalsignalsignal

�� USD/ZARUSD/ZARUSD/ZARUSD/ZAR should decshould decshould decshould decline at line at line at line at least to the lower end of the least to the lower end of the least to the lower end of the least to the lower end of the tentative declining channel, tentative declining channel, tentative declining channel, tentative declining channel, which comes at 6.89 this weekwhich comes at 6.89 this weekwhich comes at 6.89 this weekwhich comes at 6.89 this week ((((----0.040.040.040.04/week/week/week/week))))....

The recent break below the LT rising support line drawn from the April 2006 low of 5.95 and this week’s push below the 7.18/20 support zone call for an extension of the down-leg started at 8.09 in May.

USD/ZAR should decline at least to the lower end of the tentative declining channel, which comes at 6.89 this week (-0.04/week), before attempting to enter a lasting recovery.

Written at 8:45am GMT on 17 September

3333rdrdrdrd supportsupportsupportsupport 2222ndndndnd supportsupportsupportsupport 1111st st st st supportsupportsupportsupport LastLastLastLast 1111stststst resistanceresistanceresistanceresistance 2222ndndndnd resistanceresistanceresistanceresistance 3333rdrdrdrd resistanceresistanceresistanceresistance

6.71 6.85 7.05 7.12 7.17 7.31 7.44 [email protected]@[email protected]@sgcib.com & [email protected]& [email protected]& [email protected]& [email protected]

WEEKLY CHART

Tentative declining channel

LT support line

WEEKLY CHART

25.02

22.89

23.70

24.61

7.18/20

8.09



FX QuantsightFX QuantsightFX QuantsightFX Quantsight

EM Dashboard EM Dashboard EM Dashboard EM Dashboard –––– SpotSpotSpotSpot

EM crosses (EM crosses (EM crosses (EM crosses (sssshorthorthorthort---- and and and and llllongongongong----term FXterm FXterm FXterm FX----PCA valuation)PCA valuation)PCA valuation)PCA valuation)

Cross rateValue

market Short-term

modelShort term

z-scoreLong-term

modelLong-term

z-score Carry (%) Weekly varAUD/PLN 2.84 2.76 1.68 2.48 1.63 1.1 0.1%BRL/MXN 7.51 7.29 1.47 7.00 0.85 6.2 -0.6%CZK/HUF 11.47 11.21 1.42 10.97 0.93 -4.3 -1.3%CHF/PLN 3.02 2.93 1.41 2.66 2.08 -3.4 -1.1%ZAR/JPY 12.04 11.82 1.32 10.58 1.14 5.7 3.9%TRY/MXN 8.60 8.43 1.17 8.19 0.87 2.7 0.3%BRL/PLN 1.77 1.72 1.04 1.61 1.29 7.2 -1.3%NZD/PLN 2.22 2.16 1.00 1.92 1.52 -0.4 -0.7%CAD/PLN 2.94 2.90 0.92 2.67 1.31 -2.4 -1.4%MYR/JPY 27.46 27.22 0.87 28.55 -0.76 0.2 1.8%CHF/TRY 1.49 1.47 0.83 1.42 1.25 -7.1 -0.6%MYR/KRW 373.36 367.64 0.75 364.22 0.64 -2.2 -0.7%TWD/KRW 36.59 36.30 0.74 36.69 -0.08 -2.1 0.0%BRL/CLP 288.53 284.51 0.72 300.25 -0.69 8.2 0.1%BRL/CZK 11.07 10.92 0.71 10.38 1.17 9.7 -1.7%AUD/TRY 1.40 1.39 0.64 1.32 1.03 -2.6 0.6%NZD/TRY 1.09 1.08 0.62 1.03 1.09 -4.1 -0.2%PLN/HUF 71.59 71.10 0.60 70.95 0.21 -1.8 -1.7%JPY/KRW 13.60 13.50 0.41 12.76 1.57 -2.4 -2.4%MXN/HUF 16.90 16.79 0.37 16.27 1.17 -0.8 -2.4%TRY/JPY 57.16 56.87 0.33 60.83 -0.89 7.0 3.3%GBP/PLN 4.71 4.68 0.21 4.42 0.82 -2.9 -1.7%CZK/JPY 4.51 4.50 0.12 5.01 -1.53 0.8 4.1%TWD/JPY 2.69 2.69 0.11 2.88 -1.43 0.3 2.5%PLN/MXN 4.24 4.24 0.02 4.36 -0.62 -1.0 0.8%BRL/ZAR 4.15 4.16 -0.17 4.91 -1.75 4.8 -1.4%CAD/TRY 1.45 1.46 -0.25 1.42 0.38 -6.1 -0.9%TRY/BRL 1.14 1.16 -0.51 1.17 -0.18 -3.5 0.9%GBP/CZK 29.38 29.70 -0.54 28.55 0.36 -0.4 -2.1%PLN/JPY 28.17 28.58 -0.66 32.39 -1.44 3.3 3.8%TRY/ZAR 4.75 4.81 -0.87 5.75 -1.59 1.3 -0.6%MXN/CLP 38.42 39.04 -0.87 42.88 -1.01 2.0 0.6%

PLN/CZK 6.24 6.34 -0.92 6.47 -0.80 2.5 -0.3%

HUF/JPY 0.39 0.40 -0.95 0.46 -1.59 5.1 5.5%

EUR/TRY 1.94 1.97 -1.07 2.04 -1.18 -6.6 0.3%

MXN/CZK 1.47 1.50 -1.16 1.48 -0.07 3.5 -1.1%

EUR/ILS 4.88 4.95 -1.25 4.91 -0.20 -1.1 1.4%

MXN/JPY 6.65 6.75 -1.26 7.43 -1.03 4.3 3.0%

MXN/CAD 0.08 0.08 -1.60 0.09 -0.65 3.4 0.7% Source: SG Cross Asset Research



EM Dashboard EM Dashboard EM Dashboard EM Dashboard –––– VolVolVolVolatilityatilityatilityatility

EUR/PLN 3M volatility smileEUR/PLN 3M volatility smileEUR/PLN 3M volatility smileEUR/PLN 3M volatility smile USD/TRY 3M volatility smileUSD/TRY 3M volatility smileUSD/TRY 3M volatility smileUSD/TRY 3M volatility smile

8%

18%

3.5 3.7 3.9 4.1 4.3 4.5 4.7 4.9

vola

tility

strike

Current 1w ago 1m ago

9%

14%

19%

1.4 1.45 1.5 1.55 1.6 1.65 1.7 1.75 1.8

vola

tility

strike


USD/BRL 3M volatility sUSD/BRL 3M volatility sUSD/BRL 3M volatility sUSD/BRL 3M volatility smilemilemilemile USD/KRW 3M volatility smileUSD/KRW 3M volatility smileUSD/KRW 3M volatility smileUSD/KRW 3M volatility smile

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

1.5 1.6 1.7 1.8 1.9 2 2.1 2.2 2.3 2.4

vola

tility

strike


10%

20%

1000 1050 1100 1150 1200 1250 1300 1350 1400

vola

tility

strike


Source: SG Cross Asset Research

PCA on EM vol (ATM, 3M, USD base)PCA on EM vol (ATM, 3M, USD base)PCA on EM vol (ATM, 3M, USD base)PCA on EM vol (ATM, 3M, USD base) Risk premia for EM volatilities Risk premia for EM volatilities Risk premia for EM volatilities Risk premia for EM volatilities

Volatility z-scoreValue

market (%)Value

model (%)

HUF 1.61 18.96 16.59KRW 1.20 12.63 9.96PLN 1.16 17.79 16.19MXN 0.97 12.22 10.56SGD 0.91 6.08 5.76MYR 0.47 8.03 7.76CZK 0.31 13.34 13.05IDR 0.21 9.29 8.77TRY -0.12 11.05 11.18

INR -0.45 7.80 8.36

BRL -0.62 12.29 13.21

CLP -0.65 11.04 11.80

ZAR -1.11 13.87 15.66

ILS -1.40 6.24 8.05

TWD -1.73 4.70 5.89

Currency pair Expiry

Implied vol (%)

Realised vol (%)

Risk premium

USD/KRW 2Y 13.4 23.1 0.6EUR/CZK 2Y 7.3 10.6 0.7USD/ILS 2Y 7.3 10.6 0.7

USD/ZAR 2Y 15.8 22.8 0.7USD/BRL 2Y 17.1 22.3 0.8USD/TRY 2Y 14.1 17.9 0.8EUR/PLN 2Y 12.5 15.9 0.8USD/IDR 2Y 14.3 18.1 0.8

USD/KRW 6m 13.1 15.5 0.8USD/MXN 2Y 14.1 16.3 0.9USD/ZAR 1m 13.3 9.0 1.5EUR/PLN 1m 10.4 7.1 1.5EUR/PLN 3m 11.3 7.6 1.5USD/BRL 3m 12.4 8.2 1.5USD/INR 1m 7.3 4.6 1.6USD/IDR 1Y 12.8 7.8 1.6

EUR/CZK 1m 6.4 3.9 1.6USD/BRL 1m 10.7 6.1 1.8

USD/TWD 1m 4.1 2.2 1.8USD/IDR 3m 9.5 4.8 2.0




FFFFixed Income ixed Income ixed Income ixed Income StrategyStrategyStrategyStrategy

Poland Poland Poland Poland : Local government bonds to benefit from lower : Local government bonds to benefit from lower : Local government bonds to benefit from lower : Local government bonds to benefit from lower supply supply supply supply aaaand relative value on the Eur Poland curvend relative value on the Eur Poland curvend relative value on the Eur Poland curvend relative value on the Eur Poland curve

The Ministry of Finance sold EUR1bn 10y POLAND euro benchmark at midswaps +120bp on 16 September. Despite the strong demand for the bond, the MinFin only wanted to sell a maximum of EUR1bn this year.

According to the Deputy Finance Minister, Dominik Radziwill, this bond sale is pre-financing for next year’s borrowing needs. As already discussed in ‘CEE: Improving fiscal outlook – is it for real?’ in Emerging Weekly on 10 September, this Eurobond bond sale will lower domestic bond supply in the near term, which was confirmed by Radziwill’s comments yesterday that ‘Polish debt issuance on the domestic market in Q4 will be significantly lower than Q3.’ This favourable supply consideration, combined with Moody’s comments that they ‘see upward pressure on ratings in Poland and the Czech Republic’, reinforces our positive view on local government debt and justifies further outperformance of bonds (especially the longer-end) versus swaps. Radziwill also said that a yen issue is possible in November, and there may be a further issue of Eurobonds as early as January 2011.

Relative Value in POLAND curve

The new POLAND4 3/21 was priced midswaps+120bp, tighter than our estimate of midswaps +130bp (see EM FI Special - What value in new € 10-year Poland? for details). Despite tighter price guidance, we think the new bond still offers value compared with the like-maturity euro POLAND bonds, especially POLAND4.2 4/20.

On a relative value basis, POLAND 2020 is richOn a relative value basis, POLAND 2020 is richOn a relative value basis, POLAND 2020 is richOn a relative value basis, POLAND 2020 is rich in asset-swap terms compared with POLAND 2018 and POLAND 2022. The 2020 is an old 15-year, with a total outstanding of €5.3bn (it was issued at the time of the Paris Club exchanges). All this makes it a good candidate for switches into the new 2021.

The POLAND 2The POLAND 2The POLAND 2The POLAND 2020 bond is also rich from the CDS020 bond is also rich from the CDS020 bond is also rich from the CDS020 bond is also rich from the CDS----bond bond bond bond basis perspective.basis perspective.basis perspective.basis perspective. Risk-adjusted CDS-bond basis comparison shows that the basis is currently the tightest (i.e. maturity-matched CDS – ASW) for POLAND 2020 at 45bp, compared with +50bp for both POLAND 2018 and 2022 (see Graph 1). The CDS-bond basis for POLAND 2025 is actually negative on a risk-adjusted basis (taking into account the fact that the bond is trading far away from par). This means the bond ASW is wider than the equivalent CDS.

The pickThe pickThe pickThe pick----up between the Pup between the Pup between the Pup between the Polish 2020 and 2025 gives olish 2020 and 2025 gives olish 2020 and 2025 gives olish 2020 and 2025 gives Polish EUR bonds the steepest curve of any sovereign in Polish EUR bonds the steepest curve of any sovereign in Polish EUR bonds the steepest curve of any sovereign in Polish EUR bonds the steepest curve of any sovereign in euroeuroeuroeuro in the 10-15-year segment. The 2025 also has a large outstanding of €3bn. However, there is a case for arguing that the Polish curve should be quite flat at the long end, in order to:

- price its likely entry into the eurozone over the coming decade;

- reflect Poland’s higher growth potential.

Its steepness makes no sense to us and suggests a repricing of the Polish EUR curve is needed.

Graph Graph Graph Graph 1111: POLAND CDS: POLAND CDS: POLAND CDS: POLAND CDS----bond Basis bond Basis bond Basis bond Basis

30

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2012 2013 2014 2016 2018 2020 2022

CDS bond basis (bp)


� POLAND 10y vs core euro sovereigns POLAND 10y vs core euro sovereigns POLAND 10y vs core euro sovereigns POLAND 10y vs core euro sovereigns

Graph 2 shows the evolution of the Poland less OAT yield spread in the 2022s. It is now under 100bp, compared with the Poland CDS (some 130bp in 10s). The yield spread has been narrowing far faster than the CDS, which has been stable of late, though it also has narrowed over the past year.

Again, this illustrates the caution of investors towards eurozone sovereigns - even AAA ones - and the attractiveness of diversification into a sovereign with a high growth, low cost economy.

GraphGraphGraphGraph 2222. . . . Poland OAT 2022 (100bp) and CDS (130bp)Poland OAT 2022 (100bp) and CDS (130bp)Poland OAT 2022 (100bp) and CDS (130bp)Poland OAT 2022 (100bp) and CDS (130bp)

10

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Sep-07 Apr-08 Nov-08 Jul-09 Feb-10 Sep-10

Poland OAT 2022

Poland 10y CDS

CDS

EUR bp


That said, Poland still remains correlated to wider spread aggregates. Indeed, perhaps more so than euro sovereigns, given their euro-specific risk. Graph 3 shows a certain correlation between the spread, Poland less OAT 2022, against 5y iTraxx.



Graph 3Graph 3Graph 3Graph 3:::: Poland less OAT spread, 2022, vs 5y iTraxxPoland less OAT spread, 2022, vs 5y iTraxxPoland less OAT spread, 2022, vs 5y iTraxxPoland less OAT spread, 2022, vs 5y iTraxx


Issuance and the budget

� LowLowLowLower budgetary needs are positive for Polish bonds. er budgetary needs are positive for Polish bonds. er budgetary needs are positive for Polish bonds. er budgetary needs are positive for Polish bonds. The government’s announcement on 6 September of lower budgetary needs for 2011, down to PLN57.1bn from PLN79.2bn this year bodes well for Polish bonds. The boost to morale was already clear from the strong local PS0415 auction on 8 September, when the Ministry of Finance sold a total of PLN3.6bn at an average yield of 5.209, compared with total bids of PLN7.5bn.

According to the deputy finance minister, gross borrowing needs in 2011 are around PLN171.5bn, down from PLN193.7bn this year. Even more importantly, nEven more importantly, nEven more importantly, nEven more importantly, net et et et borrowing needs are expected to fall to PLN57.1bn in 2011 borrowing needs are expected to fall to PLN57.1bn in 2011 borrowing needs are expected to fall to PLN57.1bn in 2011 borrowing needs are expected to fall to PLN57.1bn in 2011 from PLN79.1bn this year.from PLN79.1bn this year.from PLN79.1bn this year.from PLN79.1bn this year.

The most important savings next year come from changes to the government’s cash management (around PLN19.8bn according to our Polish chief economist, Jaroslaw Janecki – see SG Poland Daily, 3 September), a lower budget deficit and privatisation flow. Income from privatisation is likely to reach PLN15bn next year. The government estimates that changes to VAT will raise revenues by PLN5.0-5.5bn. As of January 2011, Poland will have three VAT rates of 5%, 8% and 23%. The government plans to keep the higher rates for three years. If public debt exceeds 55% of GDP, the government will increase the VAT rate by another 1 percentage point in July next year. Also, if the negative situation continues, a top rate of 25% will be introduced for three years in July 2012. The remaining rates will be raised to 7% and 10%. Based on the government’s draft budget, the planned issuance for 2011 is as follows: PLN103.5bn for domestic bonds, PLN33bn for T-bills and PLN23.1bn for foreign bonds.

Graph Graph Graph Graph 4444: Redemption profile for euro POLAND bonds: Redemption profile for euro POLAND bonds: Redemption profile for euro POLAND bonds: Redemption profile for euro POLAND bonds

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2012

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2022

2025

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EUR bn


Over the medium term, we retain a cautiously opwe retain a cautiously opwe retain a cautiously opwe retain a cautiously optimistic timistic timistic timistic stance on Polish debt,stance on Polish debt,stance on Polish debt,stance on Polish debt, as further lower budgetary revision is likely to be limited by the assumed profit from the central bank and the rather optimistic assumptions on corporatedividends. Moreover, the overall debt level is still rather high at 55% and government efforts to tighten budget deficits will have to continue. Nonetheless, Poland’s budget is cyclical; hence prospects of further growth should see further downward revision in the budget deficit. This is also echoed by Moody’s comments on 16 September that Poland’s and the Czech Republic’s debt ratings may face some ‘upward pressure’ at later stage on an ongoing improvement in the economies.

How do redemptions look in 2011? Graph 4 shows the profile for upcoming redemption of the euro POLAND bonds. The largest redemption is due on the 2020.

EMU entry prospectsEMU entry prospectsEMU entry prospectsEMU entry prospects

� 2015201520152015----16 is now a more realistic target for euro entry 16 is now a more realistic target for euro entry 16 is now a more realistic target for euro entry 16 is now a more realistic target for euro entry but certainly not the top priority.but certainly not the top priority.but certainly not the top priority.but certainly not the top priority. Euro adoption is currently not the top priority for the Polish government. Following the sovereign crisis in the eurozone, support by Polish nationals for euro entry has also waned compared with two years ago. If anything, fund flows and non-resident holdings data seem to suggest that there has been diversification from the weaker credit euro periphery into Polish bonds (see EM FI Special - What value in new € 10-year Poland? for details)

� The lack of interest in the convergence trade is also reflected in the PLN 5y5y forward vs EUR, which is still trading around the 150bp level, despite having tightened from its peak (see Graph 5).



Graph Graph Graph Graph 5555: 5y5y PLN less EUR: 5y5y PLN less EUR: 5y5y PLN less EUR: 5y5y PLN less EUR

507090

110130150170190210230

Jan 09 May 09 Sep 09 Jan 10 May 10

PLN-EUR 5y5y fwd (LHS)

bp


� Our Polish yield convergence analysis suggests Our Polish yield convergence analysis suggests Our Polish yield convergence analysis suggests Our Polish yield convergence analysis suggests further yield compression if Poland adopts euro in 2015further yield compression if Poland adopts euro in 2015further yield compression if Poland adopts euro in 2015further yield compression if Poland adopts euro in 2015----16.16.16.16. To get an indication of potential yield compression if Poland were to adopt the euro in 2015 and 2016, we re-run our Polish yield analysis for euro convergence (see EM FI & Quant Special – Where is the value in CE3 Euro

convergence? 10 February). Our analysis shows that if Poland adopts the euro in 2015, there is potential for the 5y5y forward local government bond yield to lower by 150bp (and by 130bp in the case of 2016 euro adoption). Although the above analysis applies local debt, it gives a sense of a potential reduction in yield premium if Poland is to adopt the euro in 2015/2016 (see Graph 6).

Graph Graph Graph Graph 6666:::: Forward curve for the 5y Polish government bond Forward curve for the 5y Polish government bond Forward curve for the 5y Polish government bond Forward curve for the 5y Polish government bond yield for full convergence in 2015yield for full convergence in 2015yield for full convergence in 2015yield for full convergence in 2015


[email protected]@[email protected]@sgcib.com [email protected]@[email protected]@sgcib.com




Issuance CalendarIssuance CalendarIssuance CalendarIssuance Calendar Date Issuer Bond Planned Amount (Bn local

ccy)Bid-Cover

7-Sep-10 Hungary 3 month bill 60.00 2.167-Sep-10 Turkey 2012 zero coupon bond 2.12 3.21

7-Sep-10 South Africa R203 1.10 4.46


8-Sep-10 Hungary Buyback bonds due April 2011 5.11 2.15

8-Sep-10 Czech 2013, 2.8% 7.00 3.37

8-Sep-10 Poland PS0415 3.50 2.50

8-Sep-10 Russia OFZ Bonds, series 26203 40.00 2.20

8-Sep-10 Russia OFZ Bonds, series 25072 25.00 1.84

9-Sep-10 Hungary 14C 30.00 2.41

9-Sep-10 Hungary 16C 20.00 3.57

9-Sep-10 Hungary 20A 20.00 2.52

9-Sep-10 Czech 273-day bill 8.00 1.17

10-Sep-10 South Africa R212 Inflation-linked bonds 0.18 4.64



10-Sep-10 South Africa T-bill 3M 3.83 1.31



10-Sep-10 South Africa T-bill 1Y 0.40 1.00

13-Sep-10 Romania 364-day bills 1.00 4.89

13-Sep-10 Israel 2020 FRN 0.25 4.20

14-Sep-10 Hungary 3 month bill 60.00 2.18

14-Sep-10 Russia OBR Notes, series 15 1 trn 1.10



15-Sep-10 Czech 2019, 5% 8.00 1.35

15-Sep-10 Poland DS1020 3.50 2.99

15-Sep-10 Russia OFZ bonds, series 25075 35.00 1.80

15-Sep-10 Russia OFZ bonds, series 25074 5.00 5.55

16-Sep-10 Hungary 1 Y bill 50.00 1.48

16-Sep-10 Czech 1 Y bill 8.00 1.30

16-Sep-10 South Africa Sell bonds as a part of sw itch auction na

16-Sep-10 Romania 2017 0.30

20-Sep-10 Poland 52-w eek bill 1.00

20-Sep-10 Romania 182-day bill 1.00

21-Sep-10 Hungary 3 month bill na

22-Sep-10 Hungary Buyback bonds na

22-Sep-10 Russia OFZ bonds, series 26203 40.00

22-Sep-10 Russia OFZ Bonds, series 25072 30.00

23-Sep-10 Hungary Bonds na

27-Sep-10 Turkey 2011 Zero coupon bonds na

27-Sep-10 Poland 52-w eek bill 1.00

27-Sep-10 Romania 364-day bill 1.00

28-Sep-10 Hungary 3 month bill na

28-Sep-10 Turkey 2017 Floating rate note na

28-Sep-10 Turkey 2015 Fixed rate bond na

30-Sep-10 Hungary 1 Y bill na

Source: Bloomberg, Ministry of Finance



Rates Rates Rates Rates QuantsightQuantsightQuantsightQuantsight

EM IRS curve monitorEM IRS curve monitorEM IRS curve monitorEM IRS curve monitor

EM currencies summary

10y (1w mo ve)

2y10y (1w mo ve)

R ef i rate

N ext meeting

C o ns. F o recast

Level indicato r*

Slo pe indicato r*

C vxty indicato r*

D irect io nality indicato r **

P LN 4.9% (-3.0bp) 36bp (-4bp) 3.50% 24-Sep-10 3.50% --v---|------ ------|-v---- -v----|------ v-----|------

H UF 6.5% (-24.8bp) 38bp (5bp) 5.25% 23-Aug-10 5.25% -v----|------ -----v|------ ------|-v---- --v---|------

C Z K 2.6% (17.0bp) 85bp (5bp) 0.75% 23-Sep-10 0.75% v-----|------ ----v-|------ v-----|------ --v---|------

Z A R 7.4% (-1.0bp) 114bp (4bp) 6.50% 9-Sep-10 6.50% v-----|------ ---v--|------ --v---|------ ---v--|------

M XN 6.6% (-2.5bp) 132bp (-3bp) 4.50% 24-Sep-10 4.50% v-----|------ --v---|------ -v----|------ v-----|------

ILS 4.4% (15.0bp) 169bp (7bp) 1.75% 27-Sep-10 1.75% ------|----v- ------|-----v ------|---v-- ----v-|------

A ED 4.4% (7.5bp) 192bp (8bp) 1.00% ------|---v-- ------|---v-- -----v|------ -v----|------

SA R 3.6% (5.4bp) 249bp (3bp) 0.25% -v----|------ ------|--v--- ------|v----- -v----|------

Source: SG Cross Asset Research, * Curve, slope and convexity indicators: a low mark indicates a curve for which rates are low, which is flat, which has low convexity and vice-versa. ** Directionality

indicator: a low value indicates that the curve is in bull flattening/bear steepening mode and vice-versa.

PLN IRS drivers HUF IRS drivers CZK IRS drivers

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3

Sep-08 Mar-09 Sep-09 Mar-10 Sep-10

Level Slope Curvature

x nb

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3



x nb stdev

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-1

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ZAR IRS drivers AED IRS drivers SAR IRS drivers

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-1

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Feb-09 Aug-09 Feb-10 Aug-10

Lev el Slope Curv ature

x nb stdev

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Feb-09 Aug-09 Feb-10 Aug-10

Lev el Slope Curv ature

x nb stdev

IRS curve monitor

Curve drivers: The curve drivers are calculated using a 2-year rolling probabilistic PCA. Their time series are shown as a multiple of the historical standard deviation. The first driver, the level factor, can be seen as an average of the IRS within the data sample. The second driver, the slope factor, represents one chosen IRS spread. The third driver, the convexity factor, can be synthetised by some statistically weighted flys. For MXN, the convexity driver is not significant.

Curve, slope and convexity indicators: These indicators give a synthetic view of the current level of the previously presented

curve drivers. A low mark indicates a curve for which rates are low, which is flat, which convexity is low and vice-versa,

Directionality indicator: a low value indicates that the curve is in bull flattening/bear steepening mode and vice-versa. For more

about this type of indicator, see our 2010 FI Outlook.



EM IRS trade monitorEM IRS trade monitorEM IRS trade monitorEM IRS trade monitor

EM IRS trade summary

Mkt (ind., bp)

3M carry & RD * Fair value Potential

Correl to

level

Correl to

slopez-

score Fair value Potential

Correl to

level

Correl to

slopez-

score

2Y7Y 38.0 8.5 33.9 4.1 -85% 51% 0.9 34.9 3.1 -26% 95% 1.0

7Y10Y -2.0 1.4 5.1 -7.1 -97% 3% -1.2 2.9 -4.9 -81% 15% -1.7

5Y7Y10Y 6.0 0.1 -1.0 7.0 47% 59% 1.2 0.0 6.0 26% 61% 1.7

3Y5Y7Y 12.0 1.0 9.4 2.6 -49% 77% 0.4 11.3 0.7 15% 94% 0.2

7Y10Y 1.3 0.4 -3.8 5.1 -91% 19% 0.9 -1.7 2.9 -94% 11% 0.7

2Y7Y 36.5 -7.2 39.8 -3.3 -82% 55% -0.7 37.4 -0.9 -88% 34% -0.2

3Y5Y7Y 7.0 -0.7 11.0 -4.0 -52% 64% -0.6 8.5 -1.5 -45% 64% -0.3

3Y5Y10Y 5.7 -0.8 14.8 -9.1 61% 33% -0.9 10.2 -4.4 91% 1% -0.7

5Y10Y 51.0 0.2 40.2 10.8 -25% 80% 3.1 44.0 7.0 -68% 48% 1.7

2Y5Y 34.0 16.4 45.1 -11.1 -13% 97% -2.4 35.3 -1.3 -19% 98% -0.3

5Y7Y10Y -7.0 1.7 -11.2 4.2 48% 47% 0.8 -7.1 0.1 -39% 46% 0.0

2Y5Y10Y -17.0 8.1 4.8 -21.8 7% 62% -3.0 -8.7 -8.3 2% 93% -1.0

5Y10Y 39.0 3.6 36.5 2.5 -37% 86% 0.5 36.5 2.5 -83% 91% 0.8

2Y7Y 100.0 -4.2 103.8 -3.8 -38% 92% -0.8 102.9 -2.9 -74% 98% -0.8

5Y7Y10Y 11.0 -0.3 11.3 -0.3 -16% 59% -0.1 11.9 -0.9 -40% 49% -0.2

2Y5Y10Y 36.0 -4.7 43.4 -7.4 -35% 86% -0.6 42.3 -6.3 -68% 70% -0.9

5Y7Y 33.7 -1.9 26.1 7.7 -15% 69% 0.6 26.4 7.4 -21% 46% 0.5

2Y5Y 68.0 0.5 73.2 -5.2 -31% 94% -0.8 72.3 -4.3 -52% 96% -0.7

5Y7Y10Y 4.0 -3.8 -9.6 13.6 -9% 8% 0.5 -7.5 11.5 5% 14% 0.5

3Y5Y7Y 5.8 1.7 20.3 -14.6 -18% 52% -0.9 18.6 -12.9 -25% 22% -0.8

7Y10Y 37.5 3.4 32.7 4.8 -82% 47% 1.0 35.2 2.3 -16% 60% 0.7

5Y7Y 43.0 1.6 48.2 -5.2 -87% 39% -1.0 48.8 -5.8 -48% 37% -1.2

3Y5Y7Y 14.0 -0.9 6.9 7.1 -30% 43% 0.8 4.3 9.7 -6% -58% 1.1

5Y7Y10Y 5.5 -0.9 15.5 -10.0 -70% 16% -1.4 13.5 -8.0 52% -36% -1.3

5Y10Y 115.0 -1.1 106.0 9.0 -91% 28% 1.6 109.0 6.0 3% 40% 1.4

2Y5Y 77.1 -8.2 89.2 -12.1 -83% 54% -1.9 86.1 -9.0 45% 92% -1.4

5Y7Y10Y 1.0 -4.7 -0.2 1.2 -5% -3% 0.1 -1.6 2.6 -1% -13% 0.3

2Y5Y10Y -37.9 -3.5 -16.8 -21.1 -12% 67% -1.8 -22.9 -15.0 -60% -46% -1.4

5Y7Y 68.3 2.0 65.3 3.0 -86% 38% 0.5 67.0 1.2 -15% 9% 0.3

2Y10Y 248.8 -0.8 253.8 -5.0 -88% 45% -1.3 251.7 -3.0 52% 80% -1.0

5Y7Y10Y 13.1 -2.0 7.1 6.0 -31% 12% 0.5 7.1 6.0 2% 2% 0.7

2Y5Y10Y 1.9 -8.4 6.8 -4.9 -48% 44% -0.3 -2.1 4.0 70% -26% 0.4

ST MODEL (2Y)

PL

NH

UF

CZ

KZ

AR

AE

DS

AR

MX

NIL

S

LT MODEL (10Y)


IRS trade dashboard

For each currency, we give the best flattener/steepener, the best receiving fly and the best paying fly. The carry and roll-down calculations are given for steepening positions and paying flys positions.

Long term model is based on a probabilistic PCA, calibrated on historical data going back to January 1999. Z-score is calculated as the difference between market and model value, divided by the standard deviation of the residuals. Correlation to level/slope is the correlation between the trade and the first two factors of the PCA, calculated since January 1999.

Short-term model is based on the same probabilistic PCA, calibrated on a two-year rolling data set.

Correlation to level/slope: this is the correlation between the trade and the relevant driving factor, calculated on the same horizon than the one chosen for calibrating the model.

z-score: a high positive z-score indicates either attractive flatteners or attractive receiving flys. Vice-versa, a low negative z-score

indicates either attractive steepeners or paying flys.



Macro focusMacro focusMacro focusMacro focus –––– Czech outlookCzech outlookCzech outlookCzech outlook

� Czech economy Czech economy Czech economy Czech economy ---- a slowdowna slowdowna slowdowna slowdown in coming quartersin coming quartersin coming quartersin coming quarters

As we have said repeatedly, the Czech economy is a very open one. Added value in industry contributes a large portion to GDP (31.6 % in 2009) and the Czech Republic’s main export trading partners are Germany, Slovakia and Poland. There is a strong correlation of Czech industrial activity with German factory orders, thus indicating that the future development of German activity will be crucial also for the Czech GDP outlook. The German economy performed strongly in Q210 and our colleagues from SG revised up Germany’s full year growth by a significant 1.2pp to 3.2% this year, and by 0.4pp to 2.0% next year. This is surely positive for the Czech economic outlook. Yet there is reason to be cautious as there are risks to the downside. The global economy will challenge on several fronts. There is risk of a global slowdown due to macroeconomic imbalances in the US, China (an important market for German exporters) and the eurozone.

GraphGraphGraphGraph 1. C1. C1. C1. Czech industry and German orderszech industry and German orderszech industry and German orderszech industry and German orders

-25%

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-5%

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Jan.02 Jan.03 Jan.04 Jan.05 Jan.06 Jan.07 Jan.08 Jan.09 Jan.10-50%

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0%

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Czech industrial activity (yoy, sa, wda)

German orders (yoy, sa, wda)

Source: KB, CSO, Bloomberg

The Czech economy should grow 2.0% in 2010, after a fall of 4.0% last year. The expected increase in GDP will be mainly driven by a positive contribution from inventories (+2.3pp), while input from other components will be more modest (household consumption, net exports) or negative (fixed investment). This year’s growth will be affected by several factors. (1) The end of the car-scrappage subsidy is limiting Czech exports, yet the recovery in external demand is so strong so far that the data on car exports do not indicate any significant drop. (2) We can expect significant growth in inventories only if there is a lasting recovery abroad. Their potential for a positive contribution to qoq growth is already exhausted. (3) Fiscal restrictions aimed at stabilising the public finances are also weighing on the Czech economy. For this year, such restrictions are likely to impact most heavily on household consumption. Following the elections earlier this year, the new government aims to consolidate the public budget for next year, as well as 2012. However, the timing, size and structure of this consolidation is still not clear (especially for 2012). From the information available so far, we assume in our forecast an increase in the lower VAT rate from 10% to 12%, reduced public spending on consumption,

investment, wages and social benefits. In 2012, among other things, the excise duty on cigarettes should rise.

GraphGraphGraphGraph 2. GDP, industrial activity and export2. GDP, industrial activity and export2. GDP, industrial activity and export2. GDP, industrial activity and export growthgrowthgrowthgrowth

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2009Q4 2010Q2 2010Q4 2011Q2 2011Q4-20.0

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20.0

GDP (y/y,%, left scale)Industrial production (%, y/y, right scale)Nominal exports (%, y/y, right scale)

Source: KB, CSO

� CNB CNB CNB CNB likely to likely to likely to likely to leave key rate unchanged leave key rate unchanged leave key rate unchanged leave key rate unchanged at at at at its its its its September meetingSeptember meetingSeptember meetingSeptember meeting

August CPI data were only slightly below the CNB’s new forecast (0.1pp) and are thus neutral from the CNB’s point of view and confirm its CPI outlook. However, the development of adjusted inflation demonstrates the absence of demand pressures on inflation. This development contrasts with the growth of household consumption within GDP data in the first half of this year, although retail price changes lag developments in demand. Besides some interesting domestic figures, we have also heard several comments from CNB board members. We heard the calls for earlier hikes from Holman, Zamrazilova and eventually Janacek) while Tomsik would hike as late as H211. We believe the CNB key rate has bottomed out, and that it will remain at 0.75% for the rest of the year. A normalisation to neutral levels should begin at the end of Q1 or the beginning of Q211. At the end of 2011, we expect the CNB key rate at 1.50%. From an inflation-targeting point of view, monetary policy inflation should reach its inflationary target as soon as next year; accommodative monetary policy should thus be gradually removed. But the CNB will remain cautious until the end of the year over any hike to its key rate, given the weakening external demand and uncertain global outlook.

GraphGraphGraphGraph 3. CNB, KB and market view3. CNB, KB and market view3. CNB, KB and market view3. CNB, KB and market view

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

Pribor3M

FRA1X4

FRA2X5

FRA3X6

FRA4X7

FRA5X8

FRA6X9

FRA7X10

FRA8X11

FRA9X12

Market KB CNB (last forecast)

Source: CNB, Bloomberg, KB

jirijirijirijiri....skopskopskopskop@@@@kkkkb.cb.cb.cb.czzzz



Economic Data PreviewEconomic Data PreviewEconomic Data PreviewEconomic Data Preview

Brazil inflation on target, but for how long?Brazil inflation on target, but for how long?Brazil inflation on target, but for how long?Brazil inflation on target, but for how long? Brazil inflation remained benign through Q3Brazil inflation remained benign through Q3Brazil inflation remained benign through Q3Brazil inflation remained benign through Q3

Benign inflation prints amid slowing economic activity justify COPOM’s decision to end its policy-tightening cycle. Declining food prices continue to be the main driver, taking annual inflation to converge to the 4.5% target in August (from 4.6% in July). However, core inflation remains above target and the softer base from last year is likely to push inflation to inch higher over the next months. While the economy has slowed, it is still growing above potential, keeping inflationary risks alive. As such the inflation trajectory over the next months (and the finite BRL strength benefit) may test COPOM’s dovish stance.

alejandro.cuadradoalejandro.cuadradoalejandro.cuadradoalejandro.cuadrado@[email protected]@[email protected]

1.5%

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10

Headline inflation (y/y)Core inflation (y/y)Target band


Mexico Banxico immunised against the inflation reboundMexico Banxico immunised against the inflation reboundMexico Banxico immunised against the inflation reboundMexico Banxico immunised against the inflation rebound Mexico inflation is likely to bounce into Q4Mexico inflation is likely to bounce into Q4Mexico inflation is likely to bounce into Q4Mexico inflation is likely to bounce into Q4

August’s inflation confirmed that the expected inflation rebound may have already started. The uptick in food prices along with steeper commodities, no MXN gains and rising local energy prices will likely push headline inflation above Banxico’s 4% target ceiling towards the year-end (from 3.7% in August). Nevertheless, we expect inflation to remain below Banxico’s forecast range (4.75%-5.25% in Q4). This scenario favours a continued Banxico pause but also decreases the chances of further rate cuts as inflation remains above target.


3.0%

4.0%

5.0%

6.0%

7.0%

Aug-06 Aug-07 Aug-08 Aug-09 Aug-10

Headline

Core

Target ceiling

Source: Banxico, SG Cross Asset Research

Banxico to Banxico to Banxico to Banxico to keep the overnight rate unchanged at 4.50%keep the overnight rate unchanged at 4.50%keep the overnight rate unchanged at 4.50%keep the overnight rate unchanged at 4.50% US growth slowdown increases concerns for MexicoUS growth slowdown increases concerns for MexicoUS growth slowdown increases concerns for MexicoUS growth slowdown increases concerns for Mexico

Banxico’s tone remains dovish and we expect a continued pause at the 24 September meeting. The central bank already bought space for inflation surprises, so a floor in annual inflation should be no source of concern for now. Further, policymakers are increasingly concerned with the headwinds the US economy is facing. A slowdown in its northern neighbour will undoubtedly result in weaker manufacturing activity. Considering that the recovery in the external sector did not lead yet to a significant upturn in domestic demand, this should maintain Banxico on hold until at least H2 2011, with the risk that it might sit on its hands for even longer.


-15%

-10%

-5%

0%

5%

10%

Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10

Mexico IP (yoy)

Mexico retail sales (y/y)

US IP (yoy)

Source: INEGI, Bloomberg, SG Cross Asset Research



Colombia’s Banrep to Colombia’s Banrep to Colombia’s Banrep to Colombia’s Banrep to keep the overnight lending rate keep the overnight lending rate keep the overnight lending rate keep the overnight lending rate unchanged at 3.00%unchanged at 3.00%unchanged at 3.00%unchanged at 3.00%

Colombia Central Bank inflation fan outlook is dovishColombia Central Bank inflation fan outlook is dovishColombia Central Bank inflation fan outlook is dovishColombia Central Bank inflation fan outlook is dovish

The economy is recovering at a higher-than-expected pace, and the output gap is likely to close in H1 2011. Inflation bounced from the floor reached in Q2 and is inching higher, while the low base effect from last year will favour further upticks through to the year-end. However, policymakers remain dovish, and in their recent inflation report maintained a benign scenario with “growth without inflationary pressures”. Indeed, Banrep projections show inflation on the lower end of its 3% (±1%) target. As such, and while inflation and activity recovery suggest the gradual withdrawal of monetary stimulus should begin soon, we believe Banrep will hold on to its dovish projections and concerns over global demand and COP appreciation and maintain the reference rate on hold this month.


Source: Banrep Inflation Report



EEEEM cross asset performance and SG sentiment indicatorM cross asset performance and SG sentiment indicatorM cross asset performance and SG sentiment indicatorM cross asset performance and SG sentiment indicator

SG Sentiment indicator*SG Sentiment indicator*SG Sentiment indicator*SG Sentiment indicator* EM FX performance (long EM FX 180d return %)EM FX performance (long EM FX 180d return %)EM FX performance (long EM FX 180d return %)EM FX performance (long EM FX 180d return %)

0

0.2

0.4

0.6

0.8

1

Jul-09 Aug-09 Oct-09 Dec-09 Jan-10 Mar-10 May-10 Jun-10 Aug-10

SG

Sen

timen

t In

dica

tor

Risk seeking

Risk averse

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

HU

F

KR

W ILS

RU

B

TRY

MX

N

RO

N

CN

Y

BR

L

PLN

ZA

R

CZ

K

Source: SG Cross Asset Research, Bloomberg. *see FX QuantSight Source: SG Cross Asset Research, Bloomberg

EM ratEM ratEM ratEM rates performance (2Y IRS bp change YTD)es performance (2Y IRS bp change YTD)es performance (2Y IRS bp change YTD)es performance (2Y IRS bp change YTD) EM Equities performance (% change YTD)EM Equities performance (% change YTD)EM Equities performance (% change YTD)EM Equities performance (% change YTD)

-500 -400 -300 -200 -100 0 100

RON*RUB*HUF

KRWZARPLNCZK

TRY*MXN

ILSCNY

BRL^

-30

-20

-10

0

10

20

30

40

HU

F

CN

Y

KZ

T

BR

L

ILS

RU

B

US

D

MX

N

ZA

R

PLN

KR

W

CZ

K

RO

N

TRY

UA

H

EM equities Chg (%) since 04 Jan 10

MSCI EM

Source: SG Cross Asset Research, Bloomberg, ^Jan 11 DI * XCCY Source: SG Cross Asset Research, Bloomberg

EM 3M FX implied volatility (% change YTD)EM 3M FX implied volatility (% change YTD)EM 3M FX implied volatility (% change YTD)EM 3M FX implied volatility (% change YTD) EM CDS perforEM CDS perforEM CDS perforEM CDS performance (% change YTD)mance (% change YTD)mance (% change YTD)mance (% change YTD)

0246810121416

-40-35-30-25-20-15-10-50

RU

B

CZ

K

ILS

ZA

R

BR

L

RO

N

MX

N

PLN

TRY

HU

F

EUR

EMFX 3m implied vol Chg (%) since 04 Jan 10 (LHS) Last price (RHS)

0

100

200

300

400

500

600

-60

-40

-20

0

20

40

60

UA

H

KZ

T

RU

B

TRY

ILS

CZ

K

BR

L

MX

N

PLN

CN

Y

ZA

R

KR

W

RO

N

HU

F

CDS Chg (%) since 04 Jan 10 (LHS) Last price (RHS)

Source: SG Cross Asset Research, Bloomberg Source: SG Cross Asset Research, Bloomberg



EM FX forecastsEM FX forecastsEM FX forecastsEM FX forecasts

De c 10De c 10De c 10De c 10 Mar 11Mar 11Mar 11Mar 11 Ju n 11Ju n 11Ju n 11Ju n 11 S e p 11S e p 11S e p 11S e p 11 De c 11De c 11De c 11De c 11

EUR/PLNEUR/PLNEUR/PLNEUR/PLN 3.90 3.95 3.80 3.70 3.70

EUR/HUFEUR/HUFEUR/HUFEUR/HUF 295 290 280 275 270

EUR/CZKEUR/CZKEUR/CZKEUR/CZK 24.80 24.90 24.50 24.30 24.10

EUR/RONEUR/RONEUR/RONEUR/RON 4.25 4.25 4.20 4.20 4.15

EUR/RUBEUR/RUBEUR/RUBEUR/RUB 36.90 36.30 36.00 36.20 37.20

EUR/T RYEUR/T RYEUR/T RYEUR/T RY 1.80 1.80 1.95 1.92 1.90

USD/RUBUSD/RUBUSD/RUBUSD/RUB 32.00 32.60 31.30 30.40 28.70

USD/T RYUSD/T RYUSD/T RYUSD/T RY 1.55 1.60 1.70 1.60 1.45

USD/ZARUSD/ZARUSD/ZARUSD/ZAR 7.80 7.80 7.60 7.50 7.50

USD/ILSUSD/ILSUSD/ILSUSD/ILS 3.80 3.85 3.70 3.60 3.60

USD/EGPUSD/EGPUSD/EGPUSD/EGP 5.70 5.70 5.50 5.40 5.40

USD/BRLUSD/BRLUSD/BRLUSD/BRL 1.85 1.80 1.75 1.80 1.85

USD/M XNUSD/M XNUSD/M XNUSD/M XN 13.10 12.90 12.50 12.25 12.00

USD/CLPUSD/CLPUSD/CLPUSD/CLP 515 520 500 480 500

USD/ARSUSD/ARSUSD/ARSUSD/ARS 4.00 4.05 4.10 4.10 4.20

USD/COPUSD/COPUSD/COPUSD/COP 1875 1900 1825 1775 1800

USD/CN YUSD/CN YUSD/CN YUSD/CN Y 6.70 6.60 6.35 6.05 6.00

USD/HKDUSD/HKDUSD/HKDUSD/HKD 7.78 7.78 7.78 7.78 7.78

USD/IN RUSD/IN RUSD/IN RUSD/IN R 46.75 46.85 46.00 45.50 45.00

USD/IDRUSD/IDRUSD/IDRUSD/IDR 9050 9100 9000 8900 8900

USD/M YRUSD/M YRUSD/M YRUSD/M YR 3.15 3.17 3.10 3.07 3.05

USD/PHPUSD/PHPUSD/PHPUSD/PHP 44.75 45.00 44.25 43.00 42.00

USD/SGDUSD/SGDUSD/SGDUSD/SGD 1.35 1.35 1.34 1.34 1.33

USD/KRWUSD/KRWUSD/KRWUSD/KRW 1165 1155 1050 1000 950

USD/T WDUSD/T WDUSD/T WDUSD/T WD 32.10 32.20 32.00 31.75 31.50

USD/T HBUSD/T HBUSD/T HBUSD/T HB 31.25 31.50 31.00 30.50 30.00

EMU MonitorEMU MonitorEMU MonitorEMU Monitor

HICPHICPHICPHICP

Inflation*Inflation*Inflation*Inflation*

Long-term Long-term Long-term Long-term

GB yield*GB yield*GB yield*GB yield*

General General General General

Government Government Government Government

Balance,Balance,Balance,Balance,

last Q4 avg in % of last Q4 avg in % of last Q4 avg in % of last Q4 avg in % of

GDPGDPGDPGDP

General General General General

Government Government Government Government

Debt in % of Debt in % of Debt in % of Debt in % of

GDPGDPGDPGDP

ERM II ERM II ERM II ERM II

entryentryentryentry

LowerLowerLowerLower

RateRateRateRate

UpperUpperUpperUpper

RateRateRateRate

Maximum Maximum Maximum Maximum

upward upward upward upward

deviation**deviation**deviation**deviation**

Maximum Maximum Maximum Maximum

downward downward downward downward

deviation**deviation**deviation**deviation**

periodperiodperiodperiod 08.201008.201008.201008.2010 08.201008.201008.201008.2010 03.201003.201003.201003.2010 03.201003.201003.201003.2010

Reference ValueReference ValueReference ValueReference Value 1.91.91.91.9 4.94.94.94.9 -3.0-3.0-3.0-3.0 60606060

Czech Republic 0.6 4.2 -5.8 36 No

Hungary 5.0 7.4 -3.8 80 No

Poland 3.1 5.9 -6.9 52 No

Romania 3.1 8.1 -8.5 27 No

Bulgaria 2.0 6.4 -5.8 15 No

Estonia 0.5 NA -0.9 7 Jun.04 13.300 15.647 17.994 0.0% 0.0%

Latvia -2.0 11.9 -9.1 43 May.05 0.597 0.703 0.808 1.0% -0.7%

Lithuania 0.8 8.2 -8.6 36 Jun.04 2.935 3.453 3.971 0.0% 0.0%

* 12-month average rate

CentralCentralCentralCentral

RateRateRateRate

Note: Red cell means not fulfilling the criteria

** Maximum percentage deviations from ERM II central rate over last two years, based on a ten-day moving average of daily data at business frequency. An upward/downward deviation

implies that the currency is on the weak/strong side of the band.



Interest rates forecastsInterest rates forecastsInterest rates forecastsInterest rates forecasts

Key centra l bank ra tesKey centra l bank ra tesKey centra l bank ra tesKey centra l bank ra tes

De c 10De c 10De c 10De c 10 Mar 11Mar 11Mar 11Mar 11 Ju n 11Ju n 11Ju n 11Ju n 11 S e p 11S e p 11S e p 11S e p 11 De c 11De c 11De c 11De c 11

PolandPolandPolandPoland 4.00 4.25 4.25 4.25 4.25

HungaryHungaryHungaryHungary 5.25 5.25 5.50 5.75 6.00

Czech Rep.Czech Rep.Czech Rep.Czech Rep. 0.75 1.00 1.00 1.25 1.50

RomaniaRomaniaRomaniaRomania 6.25 6.00 6.00 5.75 5.50

Rus s iaRus s iaRus s iaRus s ia 7.75 8.25 8.75 9.25 10.00

T urkeyT urkeyT urkeyT urkey 7.00 7.50 8.00 8.50 9.00

South AfricaSouth AfricaSouth AfricaSouth Africa 6.00 6.00 6.00 6.00 6.50

Is raelI s raelI s raelI s rael 2.25 2.75 3.25 3.75 4.00

EgyptEgyptEgyptEgypt 8.25 8.50 8.75 9.00 9.25

Brazi lBrazi lBrazi lBrazi l 11.00 11.25 11.25 11.75 11.75

M ex icoM ex icoM ex icoM ex ico 4.50 4.50 4.50 4.50 5.00

ChileChileChileChile 3.75 4.75 5.00 na na

ColombiaColombiaColombiaColombia 3.50 4.25 4.50 na na

ChinaChinaChinaChina 5.31 5.31 5.31 5.58 5.58

Indones iaIndones iaIndones iaIndones ia 6.75 7.00 7.25 na na

M alays iaM alays iaM alays iaM alays ia 2.50 2.75 3.00 na na

Phil ippinesPhil ippinesPhil ippinesPhil ippines 4.50 4.50 5.00 na na

South KoreaSouth KoreaSouth KoreaSouth Korea 2.50 3.00 3.50 3.75 4.00

T aiwanT aiwanT aiwanT aiwan 1.75 2.00 2.25 na na

IndiaIndiaIndiaIndia 6.00 6.50 6.75 na na

T hailandT hailandT hailandT hailand 2.00 2.25 2.50 na na

Macro forecastsMacro forecastsMacro forecastsMacro forecasts

2008200820082008 2009200920092009 2010201020102010 2011201120112011 2008200820082008 2009200920092009 2010201020102010 2011201120112011

PolandPolandPolandPoland 5.0 1.8 3.2 3.5 4.2 3.5 2.8 3.0

Czech RepublicCzech RepublicCzech RepublicCzech Republic 2.3 -4.0 2.0 1.7 6.3 1.0 1.5 2.7

HungaryHungaryHungaryHungary 0.6 -6.7 0.0 3.4 6.1 4.2 3.9 1.9

RomaniaRomaniaRomaniaRomania 7.3 -7.1 1.0 3.0 7.9 5.6 4.3 2.6

RussiaRussiaRussiaRussia 5.6 -7.9 5.5 2.5 14.1 11.7 6.5 8.5

BrazilBrazilBrazilBrazil 5.1 -0.2 6.6 4.6 5.9 4.3 5.3 5.1

MexicoMexicoMexicoMexico 1.5 -6.5 4.2 3.2 5.7 4.5 4.8 4.5

ChileChileChileChile 3.2 -1.7 3.1 6.3 8.7 1.6 1.7 3.4

GDPGDPGDPGDP Infla tion (yea r ave rage )Infla tion (yea r ave rage )Infla tion (yea r ave rage )Infla tion (yea r ave rage )

2008200820082008 2009200920092009 2010201020102010 2011201120112011 2008200820082008 2009200920092009 2010201020102010 2011201120112011

PolandPolandPolandPoland -5.0 -1.6 -2.5 -2.5 -3.6 7.2 -7.0 -5.5

Czech RepublicCzech RepublicCzech RepublicCzech Republic -0.6 -1.00 -2.10 -3.60 -2.7 -5.9 -5.5 -4.8

HungaryHungaryHungaryHungary -7.2 0.4 -0.5 -1.4 -3.8 -3.7 -4.3 -4.3

RomaniaRomaniaRomaniaRomania -11.2 -4.4 -5.7 -5.6 -4.8 -7.4 -5.9 -4.3

RussiaRussiaRussiaRussia 6.1 3.7 4.0 1.0 4.1 -6.5 -3.5 -2.8

BrazilBrazilBrazilBrazil -1.7 -1.5 -2.7 -3.8 -1.6 -3.3 -2.5 -2.3

MexicoMexicoMexicoMexico -1.4 -0.6 -0.6 0.0 -0.1 -2.3 -2.7 -2.4

ChileChileChileChile -2.0 2.2 1.0 -1.5 5.3 -4.5 -3.8 -1.6

Fisca l ba lance (% of GDP)Fisca l ba lance (% of GDP)Fisca l ba lance (% of GDP)Fisca l ba lance (% of GDP)Curren t account ba lance (% of GDP)Curren t account ba lance (% of GDP)Curren t account ba lance (% of GDP)Curren t account ba lance (% of GDP)


CCCCROSS ASSET RESEROSS ASSET RESEROSS ASSET RESEROSS ASSET RESEAAAARCH RCH RCH RCH –––– FIXED INCOME FIXED INCOME FIXED INCOME FIXED INCOME &&&& FOREX FOREX FOREX FOREX GROUPSGROUPSGROUPSGROUPS

Global Head of ResearchGlobal Head of ResearchGlobal Head of ResearchGlobal Head of Research

Patrick LeglandPatrick LeglandPatrick LeglandPatrick Legland (33) 1 42 13 97 79 [email protected]

Head of Fixed IncomeHead of Fixed IncomeHead of Fixed IncomeHead of Fixed Income StrategyStrategyStrategyStrategy

Vincent ChaigneauVincent ChaigneauVincent ChaigneauVincent Chaigneau (44) 20 7676 7707 [email protected]

Ciaran O'HaganCiaran O'HaganCiaran O'HaganCiaran O'Hagan

Adam KurpielAdam KurpielAdam KurpielAdam Kurpiel

Aro RazafindrakolaAro RazafindrakolaAro RazafindrakolaAro Razafindrakola

Jose SarafanaJose SarafanaJose SarafanaJose Sarafana (33) 1 42 13 58 60 (33) 1 42 13 63 42 (33) 1 42 13 64 93 (33) 1 42 13 56 59 [email protected] [email protected] [email protected] [email protected]

Mark CapletonMark CapletonMark CapletonMark Capleton

Patrick GouraudPatrick GouraudPatrick GouraudPatrick Gouraud

David MendezDavid MendezDavid MendezDavid Mendez----VivesVivesVivesVives

Christian CaChristian CaChristian CaChristian Carrrrrillo (Asiarillo (Asiarillo (Asiarillo (Asia----Pacific)Pacific)Pacific)Pacific) (44) 20 7676 7956 (44) 20 7676 7850 (33) 1 42 13 31 03 (81) 3 5549 5626 [email protected] [email protected] [email protected] [email protected]

Fidelio Tata (New Fidelio Tata (New Fidelio Tata (New Fidelio Tata (New York)York)York)York)

WeeWeeWeeWee----Khoon Chong (Khoon Chong (Khoon Chong (Khoon Chong (Hong KongHong KongHong KongHong Kong)))) (1) 212 278 6213 (852) 2166 5462 [email protected] [email protected]

Head of Foreign ExchangeHead of Foreign ExchangeHead of Foreign ExchangeHead of Foreign Exchange

Kit JuckesKit JuckesKit JuckesKit Juckes (44) 20 7676 7972 [email protected]

David DeddoucheDavid DeddoucheDavid DeddoucheDavid Deddouche

Phyllis PapadavidPhyllis PapadavidPhyllis PapadavidPhyllis Papadavid

Peter FrankPeter FrankPeter FrankPeter Frank

Olivier KorberOlivier KorberOlivier KorberOlivier Korber (Derivatives)(Derivatives)(Derivatives)(Derivatives) (33) 1 42 13 56 22 (44) 20 7676 7999 (44) 20 7676 7458 (33) 1 42 13 32 88 [email protected] [email protected] [email protected] [email protected]

Head of Emerging Markets StrategyHead of Emerging Markets StrategyHead of Emerging Markets StrategyHead of Emerging Markets Strategy

Benoît AnneBenoît AnneBenoît AnneBenoît Anne (44) 20 7676 7622 [email protected]

Murat ToprakMurat ToprakMurat ToprakMurat Toprak

Gaëlle BlanchardGaëlle BlanchardGaëlle BlanchardGaëlle Blanchard

Esther LawEsther LawEsther LawEsther Law (44) 20 7676 7491 (44) 20 7676 7439 (44) 20 7676 7396 [email protected] [email protected] [email protected]

Technical analysisTechnical analysisTechnical analysisTechnical analysis

HugHugHugHuguesuesuesues NakaNakaNakaNaka

FabFabFabFabien Manac’hien Manac’hien Manac’hien Manac’h (33) 1 42 13 51 10 (33) 1 42 13 88 35 [email protected] [email protected]

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egypt: strong macro backdrop, attractive carry...basket/rub short 17-sep 35.48 34.40 36.01 brl/mxn...

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