Major economies growth likely to fall in next few years due to weaker CNY

Markets have been pricing in a higher risk of disinflationary pressure, and rightly so. Growth and inflation in the major economies are likely to fall in the next few years as a result of a weaker CNY. Europe and Japan are more vulnerable than the US, and the effect would be positive only for China. 

In line with this view, markets are anticipating that central banks will keep an easing bias, given the disinflationary influence of a weaker CNY. Core fixed income market have rapidly priced in these disinflation risks. Bond yields in major markets have fallen across the curve, but the moves have been more prominent in inflation breakevens, suggesting that inflation is a bigger concern than growth. 

"We agree with this view in the euro area and perhaps the UK, but not in the US. Avoid the bear trap, we recommend being long US BE inflation up the 5y sector (energy hedged)", says Barclays.

The market pricing of inflation is too aggressive, considering that the recent US inflation trends have been positive, labor markets have tightened further, and the Fed's reaction function is data dependant.