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Table 3: BNP Paribas' Inflation Forecasts Canada Norway Australia CPI Core CPI Headline CPI Core CPI Core Index % q/q % y/y Index % q/q % y/y Index % q/q % y/y Index % q/q % y/y Index % q/q % y/y Index % q/q % y/y 2009 114.4 0.3 113.6 1.8 125.7 2.2 118.4 2.6 167.8 - 1.8 - - 3.7 2010 (1) 116.5 1.8 115.5 1.6 128.8 2.4 120.1 1.4 172.8 - 2.9 - - 2.7 2011 (1) 118.6 1.8 117.1 1.4 131.1 1.9 121.8 1.4 178.9 - 3.7 - - 2.7 Q3 2009 114.7 0.5 -0.9 113.9 1.2 1.6 125.8 0.0 1.8 118.5 0.0 2.4 168.6 1.0 1.3 - - 3.5 Q4 2009 114.9 0.6 0.8 114.4 1.9 1.6 126.6 0.6 1.4 119.3 0.7 2.3 169.5 0.5 2.1 - - 3.4 Q1 2010 115.4 2.0 1.6 114.9 1.6 1.9 128.4 1.4 2.9 119.4 0.1 2.0 171.0 0.9 2.9 - - 3.1 Q2 2010 116.2 2.6 1.4 115.5 2.3 1.8 129.1 0.6 2.6 120.3 0.8 1.5 172.1 0.6 3.1 - - 2.7 Q3 2010 116.8 2.2 1.8 115.6 0.3 1.6 128.2 -0.7 1.9 119.9 -0.3 1.2 173.3 0.7 2.8 - - 2.4 Q4 2010 (1) 117.4 1.5 2.2 116.0 1.2 1.4 129.4 0.9 2.2 120.5 0.5 1.0 174.7 0.8 3.0 - - 2.5 Q1 2011 (1) 117.9 1.6 2.1 116.4 1.6 1.4 131.1 1.3 2.1 120.6 0.1 1.0 176.4 1.0 3.3 - - 2.5 Q2 2011 (1) 118.3 1.7 1.9 116.9 1.7 1.2 131.4 0.2 1.8 121.9 1.0 1.3 178.0 0.9 3.6 - - 2.7 Updated Dec 21 Jan 19 Jan 20 Next Release Dec CPI (Jan 25) Jan CPI (Feb 10) Q4 CPI (Jan 25) Source: BNP Paribas, (1) Forecasts Chart 8: Canadian Total versus Core CPI Chart 9: Australian CPI (% y/y) 7.0 6.0 5.0 4.0 3.0 (% y/y) Headline CPI Underlying CPI 2.0 1.0 0.0 -1.0 Q193 Q195 Q197 Q199 Q101 Q103 Q105 Q107 Q109 Q111 Q113 Source: Reuters EcoWin Pro, BNP Paribas Wage pressures appear subdued, suggesting that underlying inflation will remain within the target range. Source: Reuters EcoWin Pro, BNP Paribas Food prices should drive headline inflation sharply higher in 2011. Underlying inflation should drift higher, but remain within the target range. Risks to inflation are the upside, particularly in the near term. CPI Data Calendar for the Coming Week Day GMT Economy Indicator Previous BNPP F’cast Consensus Tue 25/01 00:30 Australia CPI q/q : Q4 0.7% 0.8% n/a 00:30 CPI y/y : Q4 2.8% 3.0% n/a 12:00 Canada CPI m/m : Dec 0.1% 0.2% 0.1% 12:00 CPI y/y : Dec 2.0% 2.6% 2.5% 12:00 BoC Core m/m : Dec 0.0% 0.0% -0.1% 12:00 BoC Core y/y : Dec 1.4% 1.8% 1.7% Thu 27/01 10:15 Belgium CPI m/m : Jan 0.4% 0.2% n/a 10:15 CPI y/y : Jan 3.1% 2.9% n/a Germany States’ Cost of Living m/m : Jan 1.0% -0.5% -0.2% States’ Cost of Living y/y : Jan 1.7% 1.8% 2.1% HICP (Prel) m/m : Jan 1.2% -0.5% -0.3% HICP (Prel) y/y : Jan 1.9% 2.0% 2.3% Fri 28/01 23:30 Japan CPI National y/y : Dec 0.1% -0.1% -0.2% 23:30 Core CPI National y/y : Dec -0.5% -0.5% -0.5% 23:30 CPI Tokyo y/y : Jan -0.2% 0.1% -0.2% 23:30 (27/01) Core CPI Tokyo y/y : Jan -0.4% -0.2% -0.3% Release dates and forecasts as at c.o.b. prior to the date of publication: See Daily Economic Spotlight for any revision Source: BNP Paribas Luigi Speranza/Eoin O’Callaghan 20 January 2011 Market Mover 52 www.GlobalMarkets.bnpparibas.com
Inflation: With Supply Comes Opportunities • GLOBAL: Supply discount except for TIPS. • EUR: Long FRF/EUR BE. Watch prel. data. • USD: 10y TIPS a test without concession. • GBP: UKTi-55 – value in RY, BE and ASW. GLOBAL: Equities, commodities and breakevens are back towards local highs (Chart 1) but have yet to break above the post-Lehman range. Positioning is much less extreme on equities and rates than in November/December (Chart 2) while on commodities net speculative oil positioning remains close to multiyear highs (i.e. on the long side). Inflation concerns continue to dominate with December data showing inflation rates rising, albeit largely due to food and energy as expected. Indeed, the market’s increasing anticipation of monetary tightening, at least in the UK and eurozone, is ultimately not bullish for inflation especially inflation forwards. More pressing in the near term and potentially weighing on breakevens generally is the significant supply in the final week(s) of January – France’s EUR 3bn BTANi-16 launch on Thursday, BTPei supply next week, USD 13bn TIPS Jan-21 launch and the syndicated re-opening of UKTi-55 (likely to be around GBP 2.7bn notional). With the exception of the US where there has been limited (if any) cheapening ahead of supply, BTANi- 16, UKTi-55 and probably BTPei supply offer good value after previous underperformance/cheapness. EUR: The AFT issued 2.995bn (top of the range) of BTANi 0.45% July 2016 at an average price of 99.48, i.e 12 cents above grey market levels. A bid/cover at 2.11 is good for such a size and compares with 1.8 for the OATi-19 launch a year ago and 1.5 for OATei- 22 in May. The BTANi-16 is currently trading 21bp through the OATi-17 and still looks a bit cheap in our view even though the floor has already lost a third of its value (given the move to lower inflation volatility). We like the BTANi-16 in the OATi curve, in ASW and especially versus EUR breakevens. As written previously, French linkers will experience much less negative carry than in Europe and this does not look priced in at least at the front end (Chart 3). Admittedly, it is difficult to short EUR breakevens (outright) in the current market environment of rising headline inflation – our economists have raised their HICP forecasts with stronger food, energy and core inflation by the year-end. Nonetheless, January’s preliminary HICP data have surprised to the downside in 5 of the last 8 years and only once to the upside (Chart 3) – first indications in Germany from 27 January. Meanwhile, upcoming BTPei supply could help the concession on ‘rich-looking’ EUR Ch. 1: Commodities, EQ and BEs at Local Highs Chart 2: Asset Positioning – Less Long than in November/December Except Commodities Chart 3: OATei-12/OATi-17 BE versus NY, Oil & EURUSD: Regression Residuals versus Carry 50 40 30 20 10 0 -10 -20 -30 -40 OATEI12 / OATI17 Breakeven / OIL / EURUSD Residuals 1m Carry Fwd Carry -50 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 OATEI12 / OATI17 Breakeven / OIL / E Yield Move Carry Potential? 1m 52.1 -21.4 30.7 2m 17.5 22.2 39.7 3m -18.9 31.2 12.3 4: Watch Out for Downward Jan HICP Surprise 6 5 4 3 2 1 0 Jan uses to suprise on the downside jan feb mar apr may jun jul aug sep oct nov dec All charts source: BNP Paribas, Bloomberg Below In Line Above 50 40 30 20 10 0 -10 -20 -30 -40 -50 Shahid Ladha / Herve Cros / Sergey Bondarchuk 20 January 2011 Market Mover, Non-Objective Research Section 53 www.GlobalMarkets.bnpparibas.com
Page 1 and 2: Market Economics | Interest Rate St
Page 3 and 4: The obvious focal point is the Summ
Page 5 and 6: such shocks at the moment, such as
Page 7 and 8: US monetary conditions, because the
Page 9 and 10: Chart 9: Asia- Ifo Expected Inflati
Page 11 and 12: President Bullard was generally sup
Page 13 and 14: Canada: Betting on Investment and E
Page 15 and 16: Eurozone Inflation: Forecast Revisi
Page 17 and 18: optimism on Germany, in last week
Page 19 and 20: On the basis of the relationship be
Page 21 and 22: The nominal policy rate and nominal
Page 23 and 24: households. Furthermore, the statis
Page 25 and 26: Norway: Norges Bank Preview • We
Page 27 and 28: Japan: New Cabinet and Policy Outlo
Page 29 and 30: Japan: Capex Outlook • Core machi
Page 31 and 32: US/EUR Spreads: Further Tightening
Page 33 and 34: US: Could the Short End Have a Puls
Page 35 and 36: Trades with higher hit ratio and Sh
Page 37 and 38: ange bound, as we expect, given tha
Page 39 and 40: EUR: Liquidity is No Stress • The
Page 41 and 42: EMU Debt Monitor: Trade Ideas • K
Page 43 and 44: EMU Debt Monitor: CDS Analysis Char
Page 45 and 46: EMU Debt Monitor: Redemptions • O
Page 47 and 48: EUR: Buy 3m5y Straddle vs 3m10y Str
Page 49 and 50: Global Inflation Watch Eurozone HIC
Page 51: Table 2: BNP Paribas' Inflation For
Page 55 and 56: Pricing Date Repo Rate Sett. Date T
Page 57 and 58: Germany 10y: MT 61.8% (3.12) break
Page 59 and 60: Travelling Asia • Inflation has e
Page 61 and 62: Capitalism requires business cycles
Page 63 and 64: EURUSD Rally Eyes 1.3750-1.3950 •
Page 65 and 66: Currency Spot Trade Recommendations
Page 67 and 68: than an unrelenting rise in prices
Page 69 and 70: Economic Calendar: 21 - 28 January
Page 71 and 72: Key Data Preview 120 115 110 105 10
Page 73 and 74: Key Data Preview Chart 5: French Sa
Page 75 and 76: Key Data Preview 10 5 0 -5 -10 -15
Page 77 and 78: Key Data Preview 3 2 1 0 -1 Chart 1
Page 79 and 80: Economic Calendar: 31 Jan - 25 Feb
Page 81 and 82: Next Week's T-Bills Supply Date Cou
Page 83 and 84: Economic Forecasts GDP Year 2010 20
Page 85 and 86: Market Coverage Market Economics Pa

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