EM Daily:Eyes on COPOM,NBP,and Fitch review on S.Africa

　　South Africa: Fitch to likely keep credit outlook at Stable

　　Ahead of today’s credit review announcement by Fitch, it’s worth reiterating our view of an unchanged stance of BBB- with stable outlook. The biggest difference between the S&P and Fitch, in our view, probably comes down to the latter assigning a larger weight to qualitative elements, such as institutional strength criteria. Therefore we still believe that there is likely to be a lower probability that Fitch changes its outlook on the credit from stable to negative. Our sense is that Fitch will place more focus on the outcome of the local elections and implications for fiscal policy and reform, before they change the current stance. Recent political-led events have reaffirmed the strength of SA’s institutions, the rule of law and fair/openness of the media. Moreover, South Africa is making some progress on the C/A as seen in recent data. While there has been progress on cutting the twin deficits and stabilizing government debt, growth still accounts for a larger weight in the credit review. Fitch expects the economy to grow by 1% and 1.5% in 2016 and 2017 respectively. While they could cut growth forecasts lower today Fitch would need more evidence of material growth slippage to cut the outlook on its rating, in our view. Nevertheless, the dropping of Business Confidence Index released yesterday to the lowest in more than two decades does not help. Eyes will also be on today’s Q1 GDP release (DB: -0.6% QoQ vs. survey of -0.1%).

　　Poland interest rate decision - what to expect and how to position into NBP

　　The June MPC meeting today will be the last one chaired by Governor Belka while his successor Glapinski already highlighted his support for continuity in monetary policy stance. We expect rates to be kept unchanged at 1.50% during the current transition period, and also in light of some MPC members’ inclination to fine-tune monetary stance against ongoing fiscal loosening. The MPC under new Governor Glapinski will continue to remain data-dependent while next likely direction in rates could be downwards in case of further slowdown in global growth or realization of tail risks in Europe and/or China. On the strategy side, we believe the best risk-reward is still for easing to be priced back into the short-end; we recommend positioning into short-end steepeners best expressed via 3x6 - 9x12 FRAs.