October 2016

Oct. 29, 2016 (Commerzbank AG) – When will the US job market heat up?

The Fed will in all likelihood leave rates unchanged at next week’s meeting. The unemployment rate has not declined over the past year, following an expansion of the labour force. As our analysis shows, however, the pool of available labour will soon be drained. Thus, the labour market will tighten next year and wage pressure is set to increase which should necessitate a gradual normalization of monetary policy.

Outlook for the week of 31 October to 4 November 2016

  • Economic data: The US labour market likely edged closer towards the Fed’s full employment target in October. By contrast, euro zone economic growth is expected to have remained very moderate in the third quarter.
  • Bond market: While there are good reasons for more bearish rates trends in Bunds and US Treasuries, this is unlikely to materialise in the near-term. With redemptions running above new issuances from euro area sovereigns, 10y yields are running into considerable technical resistance at post-Brexit levels.
  • FX market: Both the US dollar and the British pound have only limited appreciation potential in view of the meetings of the Fed and the BoE in the coming week. The market is likely to continue to view a rate hike by the Fed with scepticism. Meanwhile, the uncertain outlook for the UK as Brexit looms, remains a significant burden for sterling exchange rates.
  • Equity market: Share prices of many German companies have recovered significantly following the post-Brexit referendum collapse. This is mainly because Brexit effects are only likely to be visible after a long delay.
  • Commodity market: The price of oil is likely to continue falling as OPEC output in October will probably have far exceeded the announced production target. Gold seems likely to tread water, as a Fed rate hike before the US Presidential election is highly improbable.


Oct. 28, 2016 (Tempus Inc.) – As expected, the U.S. dollar was mostly flat overnight as market participants looked ahead to today’s economic docket.  Yesterday’s data revealed positive signs for the U.S. economy with Durable goods orders coming in net positive and jobless claims remaining near the best average in over 40 years. However, those prints were not enough to change the outlook on interest rates.

Today’s data, however, should solidify bets that the Federal Reserve will raise interest rates by the end of the year.  The U.S. economy expanded 2.9% in the third quarter of the year, beating expectations of a 2.6% reading. The increase represents the largest expansion in two years. The stellar growth follows a disappointing 1.4% expansion in the second quarter.  The report was not all roses, however. Personal consumption rose only 2.1%, missing expectations of 2.6%.  Nevertheless, the data should strengthen the Fed’s view that the economy is making slow and steady progress. Indeed, in the minutes following the GDP release odds that the Fed will increase rates by the end of the year jumped to 76% from 72% yesterday.

The U.S. dollar has gained modestly after the positive print. The University of Michigan consumer sentiment report is due out at 10 a.m. but will take a backseat to the growth numbers.


The British pound continued its retreat yesterday and overnight. The beleaguered currency was unable to take advantage of a report released yesterday that showed the British economy expanded more than economists expected. The country’s gross domestic product expanded 0.5% in the third quarter, after the Brexit vote. The sterling’s negative reaction to positive data shows that the currency may not have yet carved out a bottom and more losses are possible.  The main worry remains political, with uncertainty surrounding how the U.K. will exit the European Union. From our view, it is very likely that British businesses will be faced with a less skilled workforce as the free movement of EU citizens into the British marketplace will be limited.


The Canadian dollar has pushed to fresh multi-month lows against the U.S. dollar this morning after strong U.S. GDP highlights monetary policy divergence. The “loonie” touched its weakest level since March yesterday and continued its decline overnight as oil prices continue their retreat. WTI is holding under $50 a barrel and its 1.0% lower from yesterday.

Oct. 22, 2016 (Commerzbank AG) – Renminbi – Could it crash again?

Recently, the USD-CNY exchange rate has broken through the important 6.70 mark. Could the renminbi crash again? We demonstrate that the CNY is still a managed currency. The policy is to minimise fluctuations against the CFETS currency basket. If the US dollar tends to gain versus all currencies as of late, the PBoC cannot at the same time have its currency appreciate against the dollar. In the light of this finding, recent CNY weakness relative to the US dollar was conformist.

Further topics:

  • USA far exceeds Maastricht deficit ceiling Uncle Sam has loosened his belt. In the just-ended fiscal year 2016, the deficit rose by nearly $150bn. The consolidation course has thus ended even before any change of government in January and the possible realisation of expensive election promises which may follow.

Outlook for the week of 24 October to 28 October 2016

  • Economic data: The US economy has revived in Q3 and we look for GDP to grow at an annualised rate of 2.4%. In the euro zone, sentiment indicators will show that the economy continues growing at a moderate pace.
  • Bond market: Although the ECB’s recent inactivity should give way to far-reaching measures in December, the growing debate about reflation in the US and UK is extending to the euro rates market and underscores the tendency towards a steeper Bund curve.
  • FX market: No fresh impetus should be expected from the EUR front next week. The currency market is focusing on the economic situation in the USA as well as interest rate decisions in Norway and Sweden.
  • Equity market: The Q3 reporting season is gradually gaining momentum. So far, earnings have surprised positively overall, despite individual exceptions such as GEA. An ongoing stabilisation in earnings expectations should continue to support German equities.
  • Commodity market: The oil price rise since end-September is to a large extent speculatively driven. In response to the higher oil prices, the number of oil rigs has increased in the US. Oil prices therefore have correction potential.

Oct. 21, 2016 (Tempus Inc.) – The U.S. Dollar is closing the week almost 1.0% stronger after data and commentary helped fuel chances of a hike by end of the year. According to the tracking by the Bloomberg Dollar Spot Index, the greenback improved primarily mid-week as other major central bank decisions in Canada and Europe highlighted current policy divergence in comparison with the Fed. If anything, monetary action may be reaching its limits in impacting economic growth and forecasts cannot be upgraded unless government spending increases.

We expect more economic indicators next week to continue to paint a steady picture for the U.S. and aid the dollar sustain its gains, if not solidify its strengthening. Markit Manufacturing PMI will be released at 9:45AM today and it’s expected to show a 51.5 reading, signifying the same pace of expansion as the month prior. Equity markets are in the red, showing losses globally, and depreciating currencies against USD all across the board.


The havoc of political infighting in the U.K. continues to inflict pain on a currency now down by over 22.0% since the infamous June 23rd referendum. Lawmakers continue to criticize the Bank of England’s handling of monetary policy ever since the Brexit and a wider deficit in Britain’s budget leaves few options for the Chancellor of the Exchequer Phil Hammond to cope with the separation’s woes.

The month of September proved to be disastrous for the U.K. economy and October has charged a heavy toll on GBP. These are historically low levels with potential for further losses if there is no resolution for Britain to have any part of Europe’s single market prior to invoking Article 50 of the European Union agreement. The divorce will be so tough; it’ll make ya head spin.


The Euro continues to dwindle as markets price-in little chance of changes to the European Central Bank’s accommodative policies. Officially, the ECB announced that it will maintain its current quantitative easing program intact and plans to execute in full as planned until March 2017. No extension was discussed, but also no tapering.

We are now experiencing the downfall of the shared currency as everything from Brexit to banking crises finally caused downward pressure. There is uncertainty over the future of the EU and its members’ ability to keep selling open markets and borders to their constituents. We foresee these ranges to stick around, if not get better for purchasers of Euros.

Oct. 15, 2016 (Commerzbank AG) – The risks from ECB tapering

The ECB is not about to scale down its bond purchases over the next few months, as was widely feared following a news agency report in the middle of last week. But by the end of 2017 the Bank is likely to run out of government bonds suitable for purchase and will have to stop buying. We assess what other measures the ECB could take to prevent a reoccurrence of the government debt crisis.

Further topics:

  • ECB council meeting: warm-up for December We do not expect any new decisions from the ECB governing council until the meeting in early December. Next Thursday, discussions are thus likely only to focus on the direction the council will take. One issue is likely to be the profitability of banks; another will be the latest results of the “Survey of Professional Forecasters”.

Outlook for the week of 17 October to 21 October 2016

  • Economic data: We look for next week’s Chinese Q3 GDP release to show an unchanged annual growth rate of 6.7%. In the US, markets will focus on the September indicators that are likely to show the economy gained momentum in Q3.
  • Bond market: Next week’s ECB meeting will produce little insight on how it intends to overhaul its asset purchases programme. With no clear signs expected until December, we look for 10-year Bunds to trade close to the upper bound of the post-Brexit range.
  • FX market: The market has increasing doubts about an amicable agreement between the UK and the EU which will keep the pound under pressure in the short term. Meanwhile, the US dollar has only limited upside potential.
  • Equity market: German equity volatility is likely to remain high next year. Issues such as restructuring and M&A, interest rate sensitivity, a still weak euro and company dividend policies should largely determine price movements.
  • Commodity market: Oil can be expected to lose further ground, given the doubts about OPEC’s announced production cuts. At the same time, an increase in drilling points to a rapid recovery in US oil output.

Oct. 14, 2016 (Tempus Inc.) – The U.S. dollar extended its strong week overnight, rallying against almost all of its major rivals. The exception would be the commodity-based currencies that found support following strong Chinese inflation data. The greenback has been buoyed by rising interest rate expectations. The minutes of the last Fed meeting showed that policy makers were warming up to the idea of higher rates “relatively soon.”

Today’s economic data should bolster that narrative. Advanced retails sales met expectations, rising 0.6% in the month of September. The core sales that excludes volatile auto and gas sales, also met expectations of a 0.3% rise. A separate report showed that producer prices are also on the rise in the U.S., which should give added support to the case for higher interest rates. Total PPI rose 0.3% on a month over month basis, higher than the 0.2% expected by economists. All of the core readings either matched or slightly outpaced expectations as well. Later, the University of Michigan consumer sentiment report is slated to cross the wires.


After rallying yesterday on poor Chinese trade data, the Japanese yen is on the defensive again this morning. China’s factory-gate prices rose for the first time since 2012 indicating the Chinese economy is stronger than initially thought.

Consumer price inflation also rose for the first time in five months. The data sparked a rally in global equities with Japanese Nikkei rising half a percent and the European Stoxx 500 rising nearly 2.0%. The risk rally dampened demand for the safe-haven yen.  However, strong Chinse data cause the Australian dollar to rally nearly 1.0% against the U.S. dollar. China is Australia’s largest trading partner.


Another day, another sell-off for the British pound. The sterling remains under pressure due to the economic and political uncertainty surrounding the pending Brexit. The President of the European Council, Donald Tusk, had harsh words for the U.K.’s prospects. He said the options on the table were either a “hard Brexit” or “no Brexit” and that the notion that the U.K. would be able to remain a part of the EU’s single market was “pure illusion.”

The sterling has lost nearly 2.0% against the U.S. dollar this week. Overall, the pound is 18% weaker from the Brexit vote in June.

Oct. 8, 2016 (Commerzbank AG) – The end of an era

For almost two years, world trade has been stagnating. Besides the weak global economy and very low increases in investment, this has also been driven by political factors; the impetus from previous world trade liberalisation agreements is diminishing and protectionist measures are increasing. This trend is likely to continue and world trade should thus continue to expand at a slower pace. This is dampening global economic growth and Germany is likely to be one of the biggest losers. In the long term, inflation rates are also set to rise again, which should increase tensions within EMU.

Further topics:

  • ECB: Tapering not on the agenda for a good while yet In the last few days, markets have begun to speculate about whether an end to the ECB’s asset purchase programme is approaching. This was triggered by a news agency report, although on closer look this did not contain anything new. We still believe the ECB is likely to extend its buying programme beyond March 2017, and the latest market reaction should have strengthened its intentions.

Outlook for the week of 10 October to 14 October 2016

  • Economic data: The focus in the US next week will be September retail sales. We expect a clear rise, though this will partly be due to higher fuel prices. German economic expectations should have brightened after the surprisingly positive ifo business climate.
  • Bond market: Euro area rates markets are rattled by the untimely tapering talk with regard to €QE. As a result, market sentiment has turned sour and is unlikely to recover any time soon, as investors will be chewing over what Fed policymakers have to say in the wake of more US data due for release today.
  • FX market: The US presidential election may well become the key driver of USD exchange rates. Events that are normally important, such as today’s release of the US employment report, would lose their relevance to the FX market if market participants begin to assume that the outcome of the election will have a crucial influence on the Fed’s actions.
  • Equity market: Despite some risks ahead, we enter the fourth quarter with a dose of optimism and expect the DAX to rise to 11,200.
  • Commodity market: The rally on the oil market should soon run out of steam. The three energy agencies are likely to confirm that without lower OPEC production, supply will exceed demand for even longer than previously expected.

Oct. 7, 2016 (Tempus Inc.) – The U.S. dollar continued its bullish run overnight, with the Bloomberg Spot Index rising for the fifth consecutive day as improved interest rate expectations have buoyed the greenback.  As of 8:00 a.m., chances the Fed would raise interest rates later this year stood at 64.0%, up 5% this week.

The greenback also benefited from a wild sell-off of the British pound, putting downward pressure on all European currencies.

This morning’s economic docket should allow the greenback to hold onto its gains. The U.S. economy added only 156K jobs in the month of September, according to the Labor Department. The print failed to meet expectations of a 167K rise.

However, August’s numbers were upwardly revised by 16K, making the two prints essentially a push. The greenback initially weakened following the headline reading, but has settled in to pre-data ranges as market participants realized today’s employment data should not negatively affect interest rate expectations.

All US markets will be closed on Monday for the Columbus Day.


The Euro traded in a mixed direction overnight, rallying to its strongest level since 2011 against the Euro but falling against the U.S. dollar. Overnight, French President Francois Holland had some harsh words about the Brexit negotiations, joining Angela Merkel. The common currency has ceded ground against the U.S. dollar as diverging interest rate policies have driven trade. The Euro was unable to benefit from strong data that showed industrial production in France and Germany beat expectations.


The British pound had a wild night, falling as much as 6.1% in a two minute span against the U.S. dollar.  The move marked the second largest intra-day move in the currencies.

The day following the Brexit vote was the record. Analysts, including this one, are struggling to explain the move. A break of technical levels, computer algorithms that triggered sell orders, low sterling liquidity during the Asian session and a “fat finger” or human error are all possibilities.

Others point to tough comments from European leaders on their stance on Brexit negotiations and the possibility of Britain remaining in the EU’s single market. In truth, the cause for the sell-off could be a combination of all of the above.

The Sterling was able to recoup some of its losses, but remains more than 2.0% weaker against the U.S. dollar from yesterdays close. The current level represents the weakest sterling level during an American trading session in 31 years.

Oct. 1, 2016 (Commerzbank AG) – The Trump risk: “Speak loudly, and carry a big stick”

Despite his rather weak performance in the first TV debate, Donald Trump is lagging only slightly behind Hillary Clinton in the polls. But how many of his radical plans could he implement? In his pet subject, “foreign trade”, he could take many decisions on his own as president. But when it comes to taxes or the appointment of important officials, he would have to rely on the approval of Congress, which in many cases should put a brake on his efforts. In any case, considerably higher deficits should be expected. Therefore, the “Trump” risk should increasingly move into the markets’ focus in the coming weeks and at least cause volatility to rise.

Further topics:

  • Target2 balances closer to record level: Target2 claims in the eurozone have risen by about 400 billion euros. Italian liabilities have marked a new all-time high.
  • Meeting of oil producers – much ado about nothing At the oil producers’ meeting in Algiers next week, there is unlikely to be a voluntary limit on production. We have lowered our price forecast accordingly.

Outlook for the week of 1 to 7 October 2016

  • Economic data: The Fed’s target of full employment has almost been achieved, something likely to be confirmed by the US employment report for September. In Germany, industrial production should have more than compensated for the clear minus in July.
  • Bond market: The Bund future reached a fresh record high this week. We see downside risks prevailing next week, as a solid US labour market report should force investors to price in more of the Fed’s guidance regarding a rate hike in December. We look for wider intra-EMU spreads between large peripherals and Bunds and prefer Italy over Spain.
  • FX market: The market still harbours strong doubts about the Fed raising interest rates soon. Even a higher chance of victory for Hillary Clinton in the US presidential elections offers only little support to the US dollar amid low interest expectations.
  • Equity market: The closer we get to the year-end, the more are dividend stocks moving into the investors’ focus again. But what should not be forgotten is that the level of a share’s dividend yield alone has only limited informative value.
  • Commodity market: OPEC’s surprising change of tack should buoy oil prices near-term. But it will be difficult to implement the announced production cuts. We see the risk of a price correction medium-term. In the markets for base metals, this week looks set to be quiet given the “Golden Week” in China, especially with sentiment indicators in the major sales markets giving little reason for euphoria. Palladium, however, should exhibit relative strength thanks to good US auto sales figures.

Oct. 1, 2016 (Tempus Inc.) – The U.S. Dollar rallied overnight after economic figures fell in line with expectations. GDP figures out of the U.S. indicated a steady rate of growth. Personal Income also met its forecast of 0.2% expansion while Personal Spending stayed put at 0.0% for the month of August.

Overall, it is clear that data is painting a positive picture of ongoing improvement in America as the rest of the world struggles. The USD’s current appreciation is also due to its safe-haven status as global equities are feeling the burn of Deutsche Bank’s troubles.

Commercial banks’ shares were having their best quarter in 18 months prior to the scandal at Deutsche and issues at Commerzbank AG. Stock indexes are down all across the board as the happy ambience from the OPEC production-cut agreement faded resulting from growing concerns over instability in European banking. Bonds are gaining popularity as low-risk assets with German yields at their lowest level since July.

Also aiding the “buck’s” appreciation is the Fed’s beloved inflation measurement, the Personal Consumption Expenditures Deflator, which expanded by 1.0% over the estimated 0.9%.


Sterling fell following underwhelming data for the second quarter of the year, adding to the Pound’s woes. The UK current account deficit increased to GBP 28.7 billion showing that exports are down even as Pound has lost value significantly.
Brexit did not cause the immediate problems to the economy many feared, but political disagreements domestically and with the rest of the EU are fomenting doubt in the business as well as banking sectors. Long-term growth is at a high risk, especially if companies start departing with employment opportunities and physical capital elsewhere. GBP lost 3.6% of its value in September.


The common currency is dealing with quite a mess. Although countries on the periphery have been known to be trouble-bound for almost a decade, market participants are now worried about Germany. The largest economy in the EU is facing many challenges as some of its marquee companies in banking and auto-manufacturing are heading downward.

What is occurring is a bit of a trickle-down effect, where these large firms are negatively impacting the growth prospects of smaller businesses around the continent. EUR is 1.3% lower from its peak reached around the start of the month.