May 8 2016

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.

USA 

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.