巴黎银行-欧洲-宏观策略-英国：保持短期通胀，深化RPI改革谈判-20190315-7页_1mb

FLASH | EUROZONE - UK Inflation Outlook Summary

Core Content

This document provides an analysis of the UK inflation outlook, focusing on the Retail Price Index (RPI) and its potential reform. It discusses market dynamics, including the impact of LDI (Liability-Driven Investment) hedging flows on the performance of RPI-related instruments and the implications of Brexit-related risks on inflation expectations.

Main Points

• Market Performance:
  The 20-year RPI breakeven inflation has outperformed other RPI forward structures, likely due to heavy LDI hedging flows. These flows have prevented longer-dated breakevens from selling off, even as front-end RPI breakevens have declined significantly since mid-December.

• Trade Exit:
  The firm has exited a short 10y10y RPI trade idea with a 9bp loss, as the 20y point has shown aggressive outperformance in the curve.

• Inflation Bias:
  Despite the loss, the firm continues to favor maintaining a short inflation bias due to:

  • The potential for breakevens to narrow further if a Brexit deal is reached.
  • Increased political and public discourse on RPI reform, which may lead to market expectations of reform or scrapping of RPI.

• RPI Reform Rhetoric:
  The firm anticipates that the upcoming oral evidence from Chris Giles (Financial Times) on 19 March and the government's response to the House of Lords Economic Affairs Committee report in April will intensify discussions on RPI reform. This is expected to prompt markets to price in higher expectations for reform.

• RPI Forward Structures:

  • 5y RPI is considered fairly priced relative to current fundamentals but may fall further by 5bp if a Brexit deal is reached.
  • 6y1y and 9y1y RPI forwards are notably rich, trading 1.59 and 2.07 standard deviations above their 12-month averages, respectively.

Key Information

• Market Communication:
  This document is a marketing communication and not independent investment research. It is intended for Professional Clients and Eligible Counterparties as defined by MiFID II, and for persons with professional experience in investments.

• Legal and Regulatory Disclaimers:

  • The information is not investment advice and does not constitute a prospectus or public offering.
  • BNPP and its affiliates may have conflicts of interest due to their involvement in the financial instruments or companies mentioned.
  • The document may include simulated performance data and is not guaranteed to reflect actual future results.
  • Indicative prices are based on internal models and may vary significantly from other sources.

• Jurisdictional Disclosures:
  The document contains relevant disclosures for the UK, France, Germany, Belgium, Italy, Netherlands, Portugal, Switzerland, and Canada, emphasizing that it is for the use of intended recipients only and may not be distributed without prior written consent.

Conclusion

The firm remains cautious about the RPI and suggests that while the short 10y10y RPI trade has been exited, the overall short inflation bias is still preferred. This is due to the potential for further narrowing of breakevens in the event of a Brexit deal and the anticipated increase in RPI reform discussions, which could lead to significant market shifts.