May 2016

May 20, 2016 (Commerzbank AG) – This weekend, the people of Austria might well elect a eurosceptic president – and the next general election could see the election of a chancellor who is best described as euro-wary. Anti-EU forces are also on the march in other core euro zone countries. These countries pose much greater risks to the future of monetary union than those peripherals that have no desire to leave EMU. More than ever, the ECB will have to clear up the mess.

Further topics:

Fed: How high is the bar to a rate hike in June?

The majority on the Federal Open Market Committee wants to raise interest rates in June if economic data has improved by then. This is evident in the minutes of the April meeting that were released on Wednesday. We analyse how high the bar to a move in June is likely to be. All in all, we still believe the Fed is more likely to continue waiting. But there is a considerable risk that a rate hike is imminent.

Outlook for the week of 23 to 27 May 2016

  • Economic data: The euro zone purchasing managers’ indices have been moving sideways since the start of 2015, arguing against a major acceleration of growth. This is unlikely to change with the May data, due out next week. .
  • Bond market: Even though Fed rate hike risks are staging a comeback, current 10y Bund yields around 0.20% should attract investor interest. We hence expect recent trading ranges to remain intact though euro zone yields should tend to the downside again.
  • FX market: Uncertainty over the Fed’s future course of action should remain high, partly because of the UK’s approaching referendum on EU membership, which will keep volatility in sterling exchange rates at elevated levels.
  • Equity market: Discussions about a looming bear market are intensifying. But we believe such concerns are overdone and look to the pickup in global M1 money growth as an indication that sentiment is likely to turn more positive.
  • Commodity market: Crude oil prices look set to rise again next week as production losses, notably in Canada, continue to support the market.


May 20, 2016 (Tempus, Inc.) – The U.S. Dollar sustained most of its gains after an eventful week in which the chances of a Fed hike have significantly increased. The FOMC minutes revealed an unexpectedly hawkish Fed willing to tighten monetary policy if the economic situation stays on the current path. Consumption and global performance will be closely monitored, but traders are more confident about the probability of Fed action moving forward.

As a result, the mighty “buck” is on a positive trend. The Bloomberg Dollar Spot Index is up 1.0% already this week. The dollar’s appreciation is also due to a major contrast in the economic realities of the anemic European recovery and the slowdown in Asia, primarily in China.
Global equity indexes rallied overnight with mining companies improving the most. What goes down eventually goes up as is the case with metals such as copper, nickel, and aluminum. The recovery in the price of natural resources and other commodities, like oil, stopped the bleeding in emerging-market currencies. For example, NZD has lost 3.6% of its value since the start of May and CAD is 4.6% weaker as well.
Existing Home sales will be the only major piece of data out at 10AM today. A slew of data is expected for next week, including the much-anticipated Gross Domestic Product.
The Euro lost over 1.0% of its value this week and is trading around levels last seen at the start of April. German Producer Price Index only increased by 0.1% since last month, but the figure is negative year-over-year at (-3.1%), casting doubt on the Euro-zone’s ability to overcome deflationary pressures.
We expect the Euro to continue facing downward pressure as major economies within the union deal with uncertainty. Along with political turmoil, the Euro-zone is facing scrutiny over its handling of debt resolution and the lack of fiscal consensus within its more troubled members.

The Pound weakened for the first time this week following statements from Bank of England officials in regards to the underperformance of the U.K. economy. Although “Brexit” fears are starting to fade, the BOE officials credited the poor economic situation to other risks beyond the possibility of the U.K. leaving the EU.

Policymaker Gertjan Vlieghe explained that the current slump is creating a need for stimulus down the line, countering the argument that the BOE is the only major central bank other than the Fed that could hike interest rates.

The Pound fell to a seven-year low back on February 26th when the referendum was announced, but managed to recover 5.0% of its value since then and is no longer the worst-performing major currency in 2016.



May 18, 2016 ( – The FOMC meeting minutes gave the US dollar a boost in today’s trading session as policy makers felt that the Fed could raise rates as early as June, should economic data support the view that the world’s largest economy can withstand another increase in the benchmark rate.

“Participants agreed that their ongoing assessments of the data and other incoming information, as well as the implications for the outlook, would determine the timing and pace of future adjustments to the stance of monetary policy. Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.”- according to the official minutes transcript.

The EUR was already under pressure earlier in the session and was pushed even lower after the report. The shared currency may be in line to lose further ground with concerns over Greek debt negotiations, but more importantly, there is a feeling in Germany that default is inevitable. The International Monetary Fund pointed out that Greece is likely to miss its required surplus target and many economists believe that as an emerging economy and not a developed one, Greece should be allowed to seek help from the World Bank.

The refugee crisis, Putin’s aggression, slowdown in the economic recovery from 2007, the “Brexit” and the rise of EU-opposition parties across the continent are plaguing any progress and effort to keep the economic union intact. The Euro is now at its weakest level since April 20th.

May 7, 2016 (Commerzbank AG) – In the last three months, commodity prices have staged a sharp rally which raises the question of whether this marks the turnaround or just a temporary recovery in an unbroken downward trend. In the short and medium term, there is a risk of stronger price corrections. In the long term, however, we expect commodity prices to rise again because demand is picking up once more and (over)capacity on the supply side is being reduced.

Outlook for the week of 16 to 20 May 2016

  • Economic data: Although oil is giving upward momentum to US CPI inflation, underlying price pressure is likely to remain moderate.
  • Bond market: Market focus is likely to settle on US and euro area CPI data and central bank minutes from both the FOMC and ECB. Bond trading may prove fairly technical, and major support/resistance marks in 10y Bund yield are in for a renewed test.
  • FX market: In the week ahead, EUR-USD will likely be range bound. No top-tier economic data are up for release and the minutes of the FOMC and the ECB are also unlikely to provide any new impulses. The yen, though, remains interesting, given that it is still trading at high levels with respect to growth and inflation.
  • Equity market: The disappointing DAX trend since the start of this year is still reminiscent of the miserable stock market year 2008. But valuations are much more attractive than in 2008 and the DAX has strong valuation support in the range 8,800 to 9,000.
  • Commodity market: Contracting shale oil production and falling US crude oil stocks will likely support oil, whilst zinc and platinum group metals should also find support.

May 13, 2016 (Tempus, Inc.) – The British pound weakened overnight, giving back its modest gains from yesterday’s session.  The Bank of England’s “Super Thursday” came and went without much volatility.

The central bank kept its interest rates unchanged.  However, the press conference following the decision showed that all of monetary policy makers expressed concerns over the possibility of a British exit from the European Union.  BoE head Mark Carney maintained that a “Brexit” is the biggest domestic risk facing the economy.

The referendum on whether the United Kingdom remains apart of Europe is slated for June 23rdWhile a “Brexit” remains unlikely, we expect heightened volatility over the next six months as the “Cable” may trade in response to headlines and poll numbers.

May 13, 2016 (Tempus, Inc.) – The U.S. dollar ticked slightly stronger against the majority its peers overnight, continuing the trend of most of this month.  Indeed, the U.S. Dollar Index has strengthened just over 2.0% over the past two weeks.  The greenback has benefited from a modest rise in the expectation of future interest rate expectations.  Yesterday, two Fed presidents stated that the central bank risk stoking an asset bubble by delaying action for two long.

The greenback will look to extend its gains this morning after the economic docket showed that retail sales grew at a faster pace than economist expected.  In fact, sales in April jumped by the most in a year, an indication that consumer spending may be stoked by lower energy prices and rising wages.  Purchases climbed 1.3% last month, the biggest gain since March 2015.  The reading was well above the expected 0.8% advance and improvement from the 0.3% decline in March of this year.
A separate report showed that U.S. wholesale prices rose in April for the first time in three months.  The 0.2% gain in the producer price index followed a decline of 0.1% last month.

While one day of good data is certainly not a trend, rising price pressures and advancement in consumer spending (70.0% of the economy) will add to the argument that the Federal Reserve should raise rates again later this year.  Perhaps, twice. 

The Bank of Japan (BoJ) has either made a “fateful miscalculation,” as Goldman Sachs said – or made a tactical decision to stun markets by holding interest rates in April.

Not only did BoJ continue its -0.1% deposit rate and its 80 trillion yen ($800 billion) base money target, they also cut its inflation and economic growth forecasts for 2016-17.

While there’s ample reasons for concerned parties to be frustrated by BoJ’s inaction – currency traders be they binary option or traditional forex investors are excited by the potent volatility of the USD/JPY currency pair.

Analysts Surprised & Disappointed

Market watchers had predicted that stimulus measures would be introduced on par with the magnitude of Japan’s fiscal issues but BoJ astonished everyone by taking no action and essentially calling for patience. For years BoJ has been promising to do whatever it takes to push inflation toward 2%

The yen – already way up in recent months – rallied further. Of course, equity markets plummeted. Some analysts believe that the BoJ decision wasn’t an error at all but a tactical one. As everyone was expecting a move, the BoJ likely preferred to wait for maximum effect and not satisfy investors who sought to pressure the bank.

Is BoJ timing their move to coincide with the probable US Federal Reserve’s summer rate rise? Or is the BoJ trying to pressure the government to make wider economic adjustments? There’s no way to be absolutely sure but such tactical decisions could be dangerous as Japan’s larger strategic goals seem muddled – which shakes the confidence of citizens and investors alike.

While the Japanese government is expected to reveal new steps in May about the time of the G7 summit (which will be in Japan), there’s little optimism that big reforms will be initiated.

USD/JPY Now Super Volatile

As far as more practical matters – global markets have reacted, with the Nikkei index down about 8% since the BoJ pronouncement. As far as the Japanese yen – it quickly gained ground after the meeting. That trend is continuing as the US dollar dropped below ¥106 – the lowest since September 2014 and below the ¥111+ before the BoJ decision.

Nevertheless, some experts think that this is a currency crisis in the making. After all, Japan has an export-based economy – so a Japanese manufactured car that sells for $20K that would ordinarily make ¥240,000 a few months ago (after paying employees and suppliers in weaker yen) is now a car that will only make ¥216,000 – ultimately erasing all of their profit on the vehicle.

Analysts believe that the USD/JPY will continue tumbling in the near-term but will eventually climb considerably higher. This volatility is very likely to continue and will affect the two entwined currencies for some time until the BoJ decides to pull the trigger and use its ammo to make adjustments – or until the Japanese government reforms its runaway economic policies. In the meantime – the BoJ seems to be content in just keeping their gunpowder dry.

The Bottom-Line for Currency Traders

Currency traders are going to have a field day for the next several months as the fluctuations in USD/JPY continue. As profits can be earned whether this currency pair goes up or down – many investors are already taking advantage of the ongoing volatility.

Naturally, there are other factors that can affect USD/JPY including a wide-variety of capital and asset markets, sectors, commodities, indices, stocks, etc. These numerous factors only adds fuel to the already flammable volatility and to the conducive trading environment.

May 7, 2016 (Commerzbank AG) – The economic data of recent weeks suggest that unlike the US, China and the euro zone are faring better than expected. However, we have adopted a more cautious line. In fact, growth in China has probably continued to slow down, and the initial estimate of euro zone GDP is likely to have exaggerated the underlying pace of growth. We expect the ECB to continue buying bonds across the board and to opt for more quantitative easing by the end of the year. The US economy, though, is doing far better although we have cut our 2016 growth forecast to 1.8%, and now envisage only two further rate hikes by end-2017.

Outlook for the week of 9 to 14 May 2016

  • Economic data: We look for Q1 German GDP to show a gain of 0.6% versus Q4, even though industrial production probably dropped sharply in March. In the euro zone, initial Q1 growth estimates are likely to be corrected down by 0.1 percentage points to 0.5%. In the US, April retail sales are expected to point to a marked rise in consumption.
  • Bond market: Today’s US labour market report will set the tone for US Treasuries and euro area government bonds next week. A range of offsetting factors suggest that USTs and Bunds should trade range-bound.
  • FX market: After the Fed’s rate decision and the employment report due today, fresh impetus for USD exchange rates are unlikely to materialise in the next few days. Dollar pairs will thus be dominated by the outlooks of other central banks.
  • Equity market: MDAX companies have tended to outperform their DAX peers during the Q1 reporting season. However, the strengthening of the euro, particularly against the dollar, since the start of the year is likely to keep weighing on German corporate earnings.
  • Commodity market: Energy agencies will further dampen sentiment by confirming current high oversupply on the oil market. Base metal prices are also likely to retreat following lower Chinese copper imports in April.

May 6, 2016 (Tempus, Inc.) – The EUR staged a short-lived rally attempt immediately following the NFP release, but quickly gave up its gains despite of the U.S. labor market registering its slowest pace of expansion in seven months.

The Euro traded lower against the dollar and depreciated as a result of a rebound in the price of commodities. Recently, the shared currency has been a beneficiary of chaos and instability in global markets and may lose ground in the long-term if the environment improves for resource-based economies.

The Yen and Euro played safe-haven roles during the first quarter of the year, but negative rates and further QE may start to weigh on them as more currency flows as intended. Although GDP and unemployment improved for the Euro-zone, there is concern over the ongoing refugee crisis and the “Brexit” vote.

May 6, 2016 (Tempus, Inc.) – The Pound is closing its worst weekly performance against the dollar since March.

Bank of England Governor Mark Carney is feeling the pressure to deliver some relief next week as the central bank makes its policy decision.

The benchmark rate is still at the record-low 0.5% and fears over the “Brexit” possibility are likely to keep rates unchanged.

More importantly, economists are worried about the recent slump in data and wonder if the BOE may need to step in by easing measures further.

The “Brexit” fear is manifesting itself in the lack of consumption growth and the anemic pace of growth in both the manufacturing and services sectors.