July 31, 2016 (Commerzbank AG) – What’s left of the Brexit shock?
Many economists have sharply lowered their forecasts for Germany and the euro zone after the British vote to leave the EU, being afraid of an uncertainty shock. But there is scant evidence so far of any uncertainty shock in the rest of the EU. Of course, weaker economic growth in the UK, as an important trading partner, will be felt in Germany and across the euro zone but the effect is likely to be much weaker than many forecasts presently assume. We outline the indicators which investors should look out for in the weeks ahead.
Further topics:
BoE Preview: Action stations
After the reduction in banks’ countercyclical capital buffer earlier this month, the MPC is expected to follow up with a cut in Bank Rate and we look for a reduction of 25 bps next week, taking it to 0.25%. But more QE might have to wait. Page 5
Outlook for the week of 1 to 5 August 2016
- Economic data: The US employment report for July, due out next week, should support the Fed’s stance of leaning cautiously towards higher rates – which should also be vindicated by the release of PMI data. In Germany, orders likely continued their sideways trend. Page 8
- Bond market: The focus next week will shift to the BoE. The most bullish of easing expectations are unlikely to be fully met but any potential disappointment should not have large negative spillovers into Bunds and US Treasuries. US Treasuries face fundamental headwinds from the ISM index and the labour market report for July. Page 11
- FX market: After the Fed and BoJ decision the Bank of England meeting will move the FX market next week. A 25bp rate cut is very much expected. Page 12
- Equity market: The German (nominal) export boom is over as the impact of the marked euro depreciation through to mid-2015 has faded. Corporate earnings growth should remain relatively moderate, which adds to the drag on the German equity market. Page 13
- Commodity market: Commodity prices are moving in different directions. While gold and platinum prices are climbing, oil prices have been falling for weeks due to higher inventories and US production trends. By contrast gold is being driven by the bond market, which in turn is driving platinum metals which are also benefiting from decent car sales. Page 14