The ambiguous effects of a no-deal Brexit on British inflation

Edito Breakeven inflation for the 10-year Bund €i tended to rise until mid-August, but come the end o f the month it plunged once more and now sits at 0.78%. Many factors contributed to this latest pullback, notably the continuing decline in nominal yields, the downturn in crude oil prices, the behaviour of the equity markets (over August as a whole, the S&P 500 was weaker) and volatility, also of course the downtrend in inflation in the Eurozone since the end of last year. As for breakeven inflation for the 10-year TIPS, it fell back to its lowest level since end-2016. It is afflicted by much the same woes as the Bund €i ( crude oil prices , equities, volatility), also concerns of a recession, fuelled notably by the inversion of the yield curve at the end of last month (for the Treasury curve, the 10Y-2Y spread fell to -5bp at its lowest). In the United States, despite the full employment, year-on-year growth in average hourly earnings has tended to slow since the start of the year. The EZ inflation swap curve tended to steepen last month, reflecting the more pronounced decline a t the short end. The EZ 10-year inflation swap failed to break past 1%, save on brief occasions at the start of September.