20181106-法国巴黎银行-Global_inflation_update__Latest_views_and_trades_18页_2mb

Global Inflation Update Summary

Core Content Overview

This report provides an analysis of global inflation expectations and trading opportunities across major economies, focusing on the United States, Europe, the United Kingdom, and Japan. It includes key economic indicators, monetary policy outlooks, and trade ideas for inflation-linked bonds.

Key Insights

Global Inflation Trends

• Inflation Breakevens: Inflation breakevens are considered too low in most regions, except the UK, where they look rich.
• Real Yields: Global monetary policy tightening is expected to push real yields higher, with the US already seeing a significant rise.
• Monetary Policy Outlook: Central banks are expected to gradually tighten policies, with the Fed likely to pause and ECB maintaining its course.

Regional Analysis

United States

• Inflation Expectations: Core inflation is expected to rise to 2.5% y/y in 2019, with headline CPI volatile.
• TIPS Valuation: 7y TIPS breakevens are currently 25bp too low compared to nominal yields, energy prices, and USD carry.
• Trade Idea: Consider long TIPS Jan-26 breakeven with a target of 220bp, stop at 192bp, and carry of +1bp/month.
• Risks: Potential for prolonged inflation overshoot, but current breakeven levels are seen as undervalued.

Europe

• Core Inflation: The October core inflation bounce is seen as the start of an upward trend, with core inflation expected to reach 1.4% by late 2018 and continue rising in 2019.
• Trade Idea: Consider long OATei-27 breakeven with an entry at 1.46%, target of 1.70%, stop at 1.36%, and carry of +3.7/+4.2/+3.3bp over 1/2/3 months.
• FRF Strategy: A short OATi-21 vs OATei-20 real yield trade is recommended, with entry at 62.5bp, target at 92.5bp, and stop at 47.5bp.
• Factors: Carry, seasonality, and supply/demand dynamics influence breakeven levels.

United Kingdom

• Inflation Breakevens: UK inflation expectations are seen as overvalued by 13bp.
• Trade Idea: Consider short UKTi-22 vs BUNDei-23 breakeven at 184bp, target at 164bp, stop at 194bp, with carry of +18.4/+27.4/+33.6bp over 1/2/3 months.
• Brexit Impact: Carry has turned positive for short UK inflation positions, making it an opportune moment to fade the richness, especially with the risk of a hard Brexit.

Japan

• Inflation Expectations: Despite full employment since 2014, no signs of accelerating inflation.
• VAT Hike Impact: The October 2019 VAT hike from 8% to 10% is expected to raise core CPI by ~1%, equivalent to 10bp in 10y JGBi breakeven.
• Trade Idea: Consider long JGBi-23 outright at a real yield of -0.32% (or breakeven at 40bp), with a target of +10bp, stop at -5bp, and carry of +3bp over 3 months.
• Other Factors: The government's plan to make preschool free may reduce the CPI impact by ~0.6%.

Key Figures and Data

• Fig. 1: Global 10y breakevens and core inflation forecasts.
• Fig. 2: TIPS valuation and wage growth impact on inflation expectations.
• Fig. 3: Eurozone GDP growth and OATei/OATi issuance trends.

Important Disclosures

• The document is written by BNP Paribas' Strategist and Economist teams.
• It is non-independent research and may be subject to conflicts of interest.
• It is a marketing communication and not investment research under MiFID II.
• Not suitable for all investors; only for Relevant Persons as defined.
• No liability is accepted for any losses arising from reliance on the document.