June 5 2016

June 3, 2016 (Commerzbank AG) – China’s demographic problem: China faces the prospect of an exceptionally rapid rise in the percentage of over-65s in the overall population from 2020. The number of those of working age is already declining. It will be difficult for the government to counter the trend, and economic competitiveness will continue to suffer. This will condemn strong Chinese economic growth to be a thing of the past.


Brexit: Interpreting the opinion polls

Opinion polls paint a mixed picture although bookmakers’ odds point to a more clear-cut outcome of the Brexit referendum. We offer an overview of issues in interpreting the polls and caution against complacency as the referendum campaign enters its final stages.

Outlook for the week of 6 to 10 June 2016

  • Economic data: German industrial production is likely to have grown by a decent monthly rate of 1.5% in April, thus prompting hopes of a strong Q2 GDP growth rate. But this was promoted by seasonal effects due to the early timing of Easter and we should beware of extrapolating too much from the data.
  • Bond market: Euro area bond markets appear comfortable at current levels, rendering a break out from the current range unlikely in the near-term. We expect 10y Bund yields to re-test the upper end of their recent range, particularly with the ECB kick-starting its corporate bond purchases on Wednesday.
  • FX market: The currency market is still not convinced of a summer Fed rate hike. Janet Yellen will be able to do some more convincing next week which could send the USD higher. Meanwhile, GBP remains weighed down by Brexit fears.
  • Equity market: Hopes of a US rate hike have recently sent the euro lower against the US dollar which will provide renewed tailwinds particularly to those German companies with business primarily in countries where trade is mostly done in US dollars or whose currencies are tied to the US dollar.
  • Commodity market: Due to recent big production losses, oil prices should be able to hold up at their current levels for the time being, especially if the EIA confirms that demand and supply are in balance.