Market Outlook - BNP PARIBAS - Investment Services India

Key Data Preview125115105958575151050-5-10-15Chart 3: German Ifo Business ClimateExpectations less Current ConditionsCurrentConditionsExpectations-2091 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11Sources: Reuters EcoWin ProOct (f) Sep Aug JulHeadline 106.0 107.5 108.7 112.8Expectations 96.0 98.0 100.0 104.9Current Conditions 116.9 117.9 118.1 121.3Key Point:Sentiment will continue to weaken.BNP Paribas Forecast: Losing GroundGermany: Ifo Business Climate (October)Release Date: Friday 21 OctoberIfo’s business climate index has been losing ground since thestart of the year. The slide in the index has gainedmomentum since July against a backdrop of turbulence inmarkets and uncertainty over the economic outlook.The weakness to date has been concentrated in the subindexof expectations, which declined in each of the sevenmonths to September. At 98.0, the expectations index fell toits lowest level since July 2009, when the economy wasemerging from the post-financial crisis recession.The assessment of current business conditions has started todecline but the deterioration to date has been modest. InSeptember, the index stood at 117.9, down from the recordlevel of 123.3 in June but still very high.As the expectations index typically leads current conditionsby three to six months, a further deterioration in the latter islikely going forward. The weakness in some recent activitydata, including incoming orders, points the same way.We forecast another fall in the ‘headline’ business climateindex in October, though it will remain consistent with theGerman economy expanding, albeit at a slower rate.Sources: Reuters EcoWin ProChart 4: Canadian Inflationm/m % Sep (f) Aug Jul JunHeadline CPI 0.2 0.3 0.2 -0.7Bank of Canada Core 0.3 0.4 0.2 -0.6Key Point:Food and energy price declines will probably keepheadline inflation in check, while underlying seasonalfactors will push up core inflation closer to 2.0% y/y inSeptember.BNP Paribas Forecast: Seasonal But SteadyCanada: CPI (September)Release Date: Friday 21 OctoberWe expect Canadian headline CPI to be driven by anotherdecline in gasoline and food prices. Headline inflation isexpected at 0.2% m/m for the month while core inflation islikely to be closer to 0.3% m/m. On a year-on-year basis,headline inflation is seen as rising from 3.1% y/y to 3.2% –just outside the 1-3% inflation target of the BoC. Note thatfood, shelter, and transportation prices make up 63.5% of theheadline inflation index. Shelter prices are expected tomoderate somewhat as utility prices slow from their spike inJuly. September is typically a month with high apparel pricesand some education price increases. We expect this year tobe typical in this regard so core inflation is expected to gainsome ground, moving from 1.9% y/y to 2.0% y/y for themonth, reflecting some near-term seasonality and a generallysteady outlook for inflation.Looking ahead, the main upside risks to our inflation outlookinclude a larger commodity pass-through. However, thedownside risks include the strengthening of the currency, adeceleration in the growth of unit labour costs and a largercorrection in the housing market. On balance, underlyinginflation still looks well-contained, with some temporary andseasonal factors likely to reverse.Market Economics 20 October 2011Market Mover57www.GlobalMarkets.bnpparibas.com