MARKET MOVER - BNP PARIBAS - Investment Services India

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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 2010 116.5 1.8 115.6 1.7 128.8 2.4 120.1 1.4 172.6 2.8 - 2.6 2011 (1) 119.8 2.8 117.6 1.7 130.5 1.3 121.4 1.1 178.6 3.5 - 2.7 2012 (1) 122.7 2.4 120.0 2.1 132.6 1.6 123.6 1.8 183.7 2.8 - 2.7 Q3 2010 116.9 2.2 1.4 116.9 0.3 1.7 128.2 -0.7 1.9 119.9 -0.3 1.2 173.3 0.7 2.8 - - 2.4 Q4 2010 117.5 2.3 1.8 117.5 2.0 1.7 129.4 0.9 2.2 120.5 0.5 1.0 174.0 0.4 2.7 - - 2.2 Q1 2011 119.4 3.3 2.0 119.4 0.7 1.6 130.2 0.6 1.4 120.3 -0.2 0.8 176.6 1.5 3.3 - - 2.3 Q2 2011 119.8 5.6 2.5 119.8 3.4 1.5 130.9 0.6 1.4 121.5 1.0 1.0 178.0 0.8 3.6 - - 2.7 Q3 2011 (1) 120.1 -0.4 2.7 120.1 1.4 1.6 129.8 -0.9 1.2 121.2 -0.3 1.1 179.3 0.7 3.6 - - 2.8 Q4 2011 (1) 120.9 2.6 2.8 120.9 3.4 1.7 131.0 1.0 1.3 122.4 1.0 1.6 180.6 0.7 3.7 - - 2.9 Q1 2012 (1) 122.2 3.3 2.9 122.2 2.0 2.1 131.4 0.3 0.9 122.6 0.1 1.9 182.0 0.8 3.0 - - 2.7 Q2 2012 (1) 122.9 4.0 2.6 122.9 1.3 2.2 132.6 1.0 1.3 123.7 1.0 1.8 182.9 0.5 2.6 - - 2.5 Updated Next Release Jul 28 Jul CPI (Aug 19) Aug 03 Jul CPI (Aug 10) Jul 27 Q3 CPI (Oct 26) Source: BNP Paribas, (1) Forecasts Chart 8: Canadian Total versus Core CPI Chart 9: Australian CPI (% y/y) BoC Mid-Point Inflation Target 7.0 (% y/y) 6.0 5.0 Headline CPI Underlying CPI 4.0 3.0 4.0 3.5 3.0 2.5 2.0 1.5 1.0 2.0 0.5 BoC CPI Core (% y/y) 0.0 -0.5 CPI Total (% y/y) -1.0 04 05 06 07 08 09 10 11 Source: Reuters EcoWin Pro, BNP Paribas In Canada, inflation surprised on the downside in June. More importantly, the move was driven by core inflation. Core inflation will increase due to the past rise in the headline CPI, but the starting point is reassuringly low. 1.0 0.0 -1.0 Q193 Q195 Q197 Q199 Q101 Q103 Q105 Q107 Q109 Q111 Q113 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 to the upside, particularly in the near term. CPI Data Calendar for the Coming Week Day GMT Economy Indicator Previous BNPP F’cast Consensus Fri 05 07:15 Switzerland CPI m/m : Jul -0.2% -0.6% -0.6% 07:15 CPI y/y : Jul 0.6% 0.7% 0.7% Wed 10/08 06:00 Germany CPI (Final) y/y : Jul 2.4% (p) 2.4% 2.4% 06:00 HICP (Final) y/y : Jul 2.6% (p) 2.6% 2.6% 08:00 Norway CPI m/m : Jul -0.4% -0.5% n/a 08:00 CPI y/y : Jul 1.3% 1.3% n/a 08:00 CPI-ATE y/y : Jul 0.7% 0.9% n/a 07:30 Sweden CPI m/m : Jul -0.2% -0.1% n/a 07:30 CPI y/y : Jul 3.1% 3.3% n/a 07:30 CPIF y/y : Jul 1.5% 1.7% n/a Fri 05:30 France CPI y/y : Jul 2.1% 2.2% n/a 05:30 HICP y/y : Jul 2.3% 2.4% n/a 05:30 Ex-Tobacco CPI (Final, nsa) : Jul 122.49 122.27 n/a 07:00 Spain CPI (Final) y/y : Jul 3.2% 3.1% n/a 07:00 HICP (Final) y/y : Jul 3.0% 3.0% n/a 09:00 Italy CPI (Final) y/y : Jul 2.7% (p) 2.7% 2.7% 09:00 HICP (Final) y/y : Jul 2.1% (p) 2.1% 2.1% 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/Gizem Kara/Dominique Barbet 4 August 2011 Market Mover 48 www.GlobalMarkets.bnpparibas.com
Inflation: Beta Hedge the Uncertainty Away? • Global: Weak. Focus on cross mkt spreads. Chart 1: 10y US BE vs. CPI & ISM Prices Paid • EUR: Overweight OATi vs. ei for carry. • USD: Sell 5-10y US BEs with beta hedge. • GBP: Real yields at their lower bound? Global – Weak. Sell US BE with beta hedge Further deterioration in activity data (especially manufacturing surveys) and continued concerns over the eurozone’s peripheral states have seen the flight to quality intensify. Equities, core bond yields and commodities (particularly energy but excluding precious metals) have fallen. Global breakevens have been much less immune than in July, with a material correction led by TIPS; the latter seem the most expensive at 5y+ maturities (vs. UK and EUR). With seasonals deteriorating in the summer, carry is now negative for all major linker markets, and support from index extensions is over. Furthermore, supply may weigh with a 5y TIPS auction, 10y and 30y UKTi auctions in the UK and a scheduled BTPei auction in late August. There is no French linker supply in August. Given low (core) real yield levels everywhere and an 8%+ fall in crude over the past week, we stay negative on breakevens. Potential support/intervention may limit the scope of the FTQ. The ECB has increased the supply of liquidity (via 6m LTROs), SMP buying has restarted and media reports have suggested the potential for QE3 in the US. In Chart 2, we find the level and evolution of 10y Treasury yields have been similar in 2011 to in 2010. The key difference is the much higher level of 10y US breakevens. As well as highlighting their richness, much higher US inflation expectations (5y5y TIPS BE forward at 2.80%) and the associated very rich level of real yields may act as a barrier to further QE from the Fed. Given increased uncertainty and the low level of rates, we prefer selling rich 5-10y TIPS breakevens but hedged with a beta at 80%. We consider various cross market opportunities in the domestic sections. On the subject of uncertainty, we plot implied interest rate and inflation Vol in Europe (Chart 3). Whilst Vol has increased marginally, we are surprised not to see a larger move given the increase in uncertainty over the macro picture. This is more the case with inflation Vol, which is typically very sensitive to downside economic risks, although we have seen some limited richening of 0% inflation floors vs. inflation caps. Source: BNP Paribas Chart 2: 10y US Tsy & BE in 2010 (QE2) & 2011 4.50 4.00 3.50 3.00 2.50 2.00 Source: BNP Paribas 10y UST (2010), Lhs 10y UST (2011), Lhs 10y US BE (2010), Rhs 10y US BE (2011), Rhs Jackson Hole (10-Aug-2010) Chart 3: Implied Inflation & Interest Rate Vol Source: BNP Paribas 2.80 2.60 2.40 2.20 2.00 1.80 1.60 1.40 1.20 1.00 Shahid Ladha / Herve Cros 4 August 2011 Market Mover, Non-Objective Research Section 49 www.GlobalMarkets.bnpparibas.com
Page 1 and 2: Market Economics | Interest Rate St
Page 3 and 4: momentum is not something we would
Page 5 and 6: particular, estimates of consumer s
Page 7 and 8: much higher inflation and inflation
Page 9 and 10: US: GDP Revisions Paint Sobering Pi
Page 11 and 12: ECB: Changing Tack • The use of u
Page 13 and 14: uncertainty and market turbulence i
Page 15 and 16: 10-year maturity and by about 150bp
Page 17 and 18: Eurozone: Weaker for Longer • The
Page 19 and 20: This is a bigger downward revision
Page 21 and 22: Japan: Rebasing to Slash July Core
Page 23 and 24: Japan: IP Recovering But Outlook Un
Page 25 and 26: BNP Paribas Surprise Indicator •
Page 27 and 28: UK headline UK economic data were,
Page 29 and 30: Japan • The Japanese FMCI rose by
Page 31 and 32: US: Taking Stock…Reality Sinks In
Page 33 and 34: In contrast, the 1y inflation swap
Page 35 and 36: US: Subtle Changes in the Short-End
Page 37 and 38: US: Short-Vol Strategy on 10y10y
Page 39 and 40: EMU Debt Monitor: CDS Analysis Char
Page 41 and 42: EMU Debt Monitor: Trade Ideas • B
Page 43 and 44: EMU Debt Monitor: Redemptions EGB M
Page 45 and 46: Global Inflation Watch Eurozone HIC
Page 47: Table 2: BNP Paribas' Inflation For
Page 51 and 52: US: TIPS Breakevens Look Vulnerable
Page 53 and 54: Table 1: BNP Paribas Carry Analysis
Page 55 and 56: Germany 10y: Down oriented again be
Page 57 and 58: CHF: Rise to Persist Despite SNB’
Page 59 and 60: Why EURUSD May Stay in a Range •
Page 61 and 62: Economic Calendar: 5 - 12 August GM
Page 63 and 64: Key Data Preview Chart 1: US Claims
Page 65 and 66: Key Data Preview Chart 5: Japanese
Page 67 and 68: Key Data Preview Source: Reuters Ec
Page 69 and 70: Treasury and SAS Issuance Calendar
Page 71 and 72: Central Bank Watch Interest Rate EU
Page 73 and 74: Market Coverage Market Economics Pa

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