June 13 2016

June 11, 2016 (Commerzbank AG) – Fed – Yes, no, perhaps

Weak labour market data have messed up the carefully prepared script for the Fed’s next rate move. An interest rate rise at the meeting next week is off the table. We show however that the recovery in the US labour market is not over yet and a rate hike at the meeting in July is therefore still on the agenda.

Outlook for the week of 13 to 17 June 2016

  • Economic data: Next week will bring a deluge of US economic data releases. We expect the figures to suggest a rather moderate pace of expansion amid slightly rising inflation pressure. In the euro zone, industrial production for April should signal weaker growth in Q2.
  • Bond market: Lower yields lead in turn to yet lower yields with 10y Bund yields now flirting with 0%. Brexit jitters add a safety bid for government bonds while ECB corporate bond purchases provide some relief. At record low yields, we suggest keeping duration exposure close to home as markets may become more erratic over the coming weeks.
  • FX market: The dollar’s appreciation trend has been broken, with the weak labour market report largely dashing expectations of a Fed rate hike in summer. Whether the dollar will keep suffering will also depend on whether the market’s long-term view of Fed policy will be reversed.
  • Equity market: A DAX summer trading market is the most likely outcome in our view, with the index remaining trapped in a range between 9,000 and 10,000.
  • Commodity market: Against the backdrop of substantial supply losses, oil prices should hold above USD 50 per barrel for now, with official estimates likely to suggest that the market is already in balance far sooner than previously predicted.