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Key Data Preview Chart 7: Canadian Inflation BNP Paribas Forecast: Short-lived Pressure Canada: CPI (December) Release Date: Tuesday 25 January Source: Reuters EcoWin Pro m/m % Dec (f) Nov Oct Sep CPI 0.2 0.1 0.4 0.2 Bank of Canada Core 0.0 0.0 0.4 0.2 Key Point: Energy prices are likely to push prices higher in December, but this looks like a bump in y/y inflation. We expect Canadian headline CPI to increase by 0.2% in November, as higher energy prices continue to pressure the headline inflation index. Consequently, headline inflation should pick up to 2.6% y/y in December from 2.0% in November. This high y/y reading is likely just a one-off as we expect the y/y inflation to be limited moving forward as a result of base effects. The Bank of Canada core CPI is expected to be flat at 0.0% m/m in December. Shelter costs are likely to be a significant factor in November’s reading. Note that food, shelter and transportation prices make up 63.5% of the headline inflation index. Looking forward, the main upside risks to the inflation outlook are higher commodity prices and more energy price pressures. On the other hand, a deceleration in the growth of unit labour costs and a more pronounced correction in the housing market should limit core inflation growth. Chart 8: Japan Trade Balance (JPY bn, s.a.) 1400 1200 1000 800 600 400 200 0 -200 -400 -600 -800 00 01 02 03 04 05 06 07 08 09 10 Source: Reuters EcoWin Pro JPYbn Dec (f) Nov Oct Sep Trade balance (nsa) 571.8 162.8 821.3 788.5 Trade balance (sa) 677.0 425.7 575.7 626.8 Key Point: Real export growth should stabilise shortly and return to pronounced expansion from the spring. BNP Paribas Forecast: Larger Surplus Japan: Trade Data (December) Release Date: Thursday 27 January Based on trade data through mid-December, we expect exports (both nominal and real) to have expanded in December and imports (both nominal and real) to have been flat. The seasonally adjusted trade surplus should thus expand over November. In November, nominal exports rose on rebounding export prices but real exports fell for a fourth straight month, reflecting the fading impact of overseas inventory restocking and fiscal stimulus, coupled with moderate adjustments of worldwide inventory levels for IT/high-tech products. Even so, with exports to China, Japan’s top trading partner, again accelerating, there are signs that real exports are set to revive. Such strength dovetails with recent Chinese indicators showing domestic demand is expanding and the Chinese manufacturing cycle has recovered (manufacturing PMI has been soaring since bottoming out in July). What is more, the manufacturing cycles in the US and EU are belatedly following China’s lead, showing signs of improvement from October. Accordingly, we expect real export growth will stabilise shortly and return to pronounced expansion from the spring. Market Economics 20 January 2011 Market Mover 74 www.GlobalMarkets.bnpparibas.com
Key Data Preview 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 Chart 9: Eurozone Sentiment by Sector Consumer Industry Construction 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: Reuters EcoWin Pro Jan (f) Dec Nov Oct Economic Sentiment 106.4 106.2 105.1 103.8 Industry 5 4 1 0 Services 9 10 10 8 Consumer -11 -11 -9 -11 Key Point: Sentiment remains elevated but divergence persists at the sectoral and national level. BNP Paribas Forecast: Internal Divergence Eurozone: Economic Sentiment (January) Release Date: Thursday 27 September The eurozone economic sentiment index improved in eight of the nine months to December, reaching its highest level since October 2007 prior to the financial crisis. The key driver of the improvement in sentiment has been the industrial sector, which has the highest weighting of the five main sub-sectors (at 40% of the total). Other leading indicators for the sector, including the manufacturing PMI, remain elevated, implying that sentiment will continue to do well, supported by strong global demand. The domestically-driven sentiment sub-surveys, like retail and consumer confidence, have fared less well. This is due in part to austerity programmes in the economies with their public finances in worst shape. In the core countries, and Germany in particular, the overall level of sentiment is much more elevated and domesticallydriven sub-surveys have done comparatively well. The gap between the level of consumer sentiment in Germany and for the eurozone as a whole is at a record high. Surveys of price expectations in the household sector have risen sharply from 2009’s lows, as have pricing intentions of industrial firms, linked to commodity price trends. They remain well below past peaks, however. Chart 10: Germany Preliminary CoL Source: Reuters EcoWin Pro Jan (f) Dec Nov Oct CoL m/m -0.5 1.0 0.1 0.1 CoL y/y 1.8 1.7 1.5 1.3 HICP m/m -0.5 1.2 0.1 0.1 HICP y/y 2.0 1.9 1.6 1.3 Key Point: We expect a further acceleration, led by food and core prices. BNP Paribas Forecast: Further Acceleration Germany: Preliminary Cost of Living (January) Release Date: Thursday 27 January We expect headline CPI inflation to accelerate further in January, up by 0.1pp point to 1.8% y/y – the highest since October 2008. We expect the HICP measure to rise by the same margin, to 2.0% y/y. The acceleration is likely to be largely due to a combination of higher core inflation and food prices while energy inflation ticks lower. More specifically, food prices are likely to continue accelerating in y/y terms as the CPI catches up with the jump in soft commodities during late 2010. Rising core inflation is likely to be driven by the clothing and household goods components. Clothing should accelerate mainly due to base effects related to a substantial drop last January that we don’t expect to be repeated this January. It is a similar story for household goods. Energy inflation is likely to reflect two opposing forces. Rising utility bills should add to inflation but be more than offset by the fall in transport prices as fuel costs rose by less than they did during the same month a year earlier. Market Economics 20 January 2011 Market Mover 75 www.GlobalMarkets.bnpparibas.com
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Market Economics | Interest Rate St
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The obvious focal point is the Summ
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such shocks at the moment, such as
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US monetary conditions, because the
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Chart 9: Asia- Ifo Expected Inflati
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President Bullard was generally sup
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Canada: Betting on Investment and E
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Eurozone Inflation: Forecast Revisi
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optimism on Germany, in last week
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On the basis of the relationship be
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The nominal policy rate and nominal
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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 and 52: Table 2: BNP Paribas' Inflation For
Page 53 and 54: Inflation: With Supply Comes Opport
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: Key Data Preview Chart 5: French Sa
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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