November 2016

Nov. 26, 2016 (Commerzbank AG) – OPEC meeting in Vienna – more ado about nothing

At next week’s OPEC meeting in Vienna, the oil producers will probably agree on output cuts. But it is questionable whether these will be implemented. We assume that the battle for market shares will continue unabated and the oil market will remain oversupplied. The oil price should therefore see only small gains in the coming year.

Outlook for the week of 28 November to 2 December 2016

  • Economic data: Next week’s forthcoming US economic data are likely to confirm that the Fed’s targets are coming closer within reach, substantiating expectations of a December Fed hike.
  • Bond market: The significant decoupling between Bund and US Treasury yields should persist driven by a diverging fundamental outlook and a shortage of Bunds. Furthermore, political risks ahead of the Italian referendum should continue to support Bunds.
  • FX market: The US dollar has risen further this week. Since the US presidential election, the USD index (DXY) has gained more than 3.5%. At the moment, there is much to suggest from a fundamental perspective that the dollar will be able to sustain its current level.
  • Equity market: Expected DAX EPS 2017 growth appears too high against a backdrop of numerous adverse trends. We look for 2017 EPS downgrades of 5% in the coming quarters.
  • Commodity market: By finalising the production cut, OPEC will likely assuage concerns about massive near-term market oversupply. With many speculators having short positions, the oil price would then be likely to rise. But we remain sceptical regarding the medium-term outlook.


Nov. 25, 2016 (Commerzbank AG) – On December 4, Italy will technically ‘only’ be voting on reform of the Senate, which is merely a constitutional amendment.

However, the outcome of this referendum could result in serious difficulties for the euro zone in the medium term. If the proposed reform motion is rejected, there could be an early general election, resulting in a government led by the eurosceptic Five-Star movement.

Its spending policies would probably push up Italy’s sovereign debt even further, and there would then be a serious risk of a ‘buyers strike’ by investors; a sharp rise in yields on Italian government bonds and the euro zone sliding towards a second government debt crisis.

With the EUR nearing important long-term support at $1.0469, a negative outcome of the “Italian Roulette” game in early December could very well serve as a catalyst for further weakness of the single currency.

Nov. 20, 2016 (Commerzbank AG) – Trumpflation – are the markets right?

Following Donald Trump’s election triumph, share prices, the dollar and even market-traded inflation expectations rose sharply. But are the markets right to take such a view? At our monthly forecast meeting, we merely made a cosmetic adjustment to our US picture. Core inflation can be expected to continue rising moderately – though more on account of near-full employment, and less on account of Trump. In the euro zone, with its high level of unemployment, core inflation seems set to hold at only 1%. In early December, the ECB will no doubt extend its bond purchase programme, and the expected resultant shortage of bonds will force it to raise the prospect of tapering purchases by mid-2017.

Outlook for the week of 21 to 25 November 2016

  • Economic data: In the euro zone, important sentiment indicators have recently signaled a somewhat higher growth rate for the final quarter of 2016. This view will come under further scrutiny next week with the release of PMI and German Ifo data.
  • Bond market: The situation remains tense on global bond markets. As investors are likely to remain nervous we expect heightened volatility, with the risk of further widening spreads and Bunds to benefit from rising risk aversion.
  • FX market: Higher inflation expectations after the US presidential election are fanning expectations of a Fed rate hiking cycle. This is lending support to the US dollar which could become a self-reinforcing process. We expect more rapid USD appreciation.
  • Equity market: The German Q3 reporting season was broadly in line with expectations, and with fewer analysts likely to revise down their earnings estimates, this is helping the market to stabilise.
  • Commodity market: Oil prices are likely to tread water until the OPEC meeting at the end of this month, with hopes of production cuts offsetting news about excess supply. Base metals markets are likely to continue correcting downwards, although gold should benefit from rising Asian buying interest.

Nov. 17, 2016 (Tempus, Inc.) – The U.S. Dollar is holding on to its recent advances and is trending positively at the moment of writing following the release of good inflation data. Consumer Price Index figures fell in line with expectations and showed improvement from last month. Year-on-year growth fell in line with the estimated 1.6% and month-over-month registered at the exact forecast 0.4%.

Initial as well as Continuing jobless claims fell below expectations, a sign of continuing labor health. Steady numbers are certainly boosting the dollar’s prospects as we get closer to a potential rate hike in December. The Fed’s Yellen’s foreseen hawkish comments from earlier this morning are also helping the ongoing appreciation.

Oil prices rose with the news of another possible agreement between OPEC members to curtail production. Mexican Peso and Canadian Dollar are not likely to recover much ground, but their depreciation has slowed down. MXN is 2.8% away from its worst level on record and CAD is trading at it weakest level since March 1st.


The Pound is holding its tight ranges despite detrimental statements surrounding the Brexit process. Reactions to the terms of the separation have been strong recently, casting further doubt on a successful and mutually beneficial accord once Article 50 is invoked. Nevertheless, the UK economy does not want to hear it.

Fundamentals such as Unemployment and Retail Sales have exceeded expectations with the UK jobless rate falling to 4.8% and sales up 1.9%. We believe GBP has room for losses, especially weighing in policy divergence, but thus far post-U.S. election its downside risks have diminished.


The currency of the rising sun is currently trading around its worst levels since the beginning of June. Although JPY gained mostly from havoc in markets this year, it is down by 8.0% since election results came out last week.

In addition to markets flourishing, the Yen is now falling as a result of the Bank of Japan’s brand new fixed-rate operations buying program in which they will start purchasing unlimited two and five-year bonds at (-0.09%) and (0.04%). The approach is more of a statement since it got no offers and its goal is to control the yield curve in the midst of a turbulent bonds market this year.

Nov. 12, 2016 (Commerzbank AG) – The European Trumps

Increasing numbers of people are turning against the political establishment, not only in the US but also in the EU. In Italy, the Five Star Movement could produce the next prime minister if the referendum on Senate reform on 4 December were to fail. In the Netherlands, Geert Wilders’ PVV is expected to emerge as the strongest party in the next post-election parliament. The advance of this anti-establishment movement is creating a climate in which politicians are less able to introduce reforms, and the ECB continues to clear up the mess on the monetary front.

Further topics:

US forecast: Is everything different after Trump’s victory?

During the election campaign, Donald Trump frequently advanced radical positions, particularly in relation to foreign trade. Do the economic and key interest rate forecasts for the US need to be adjusted following his election victory? A sober analysis reveals upside and downside risks. There is unlikely to be any rapid impact on the economy. We are therefore sticking to our forecasts for the time being.

Outlook for the week of 14 to 18 November 2016

  • Economic data: German GDP growth in Q3 is expected to post a quarterly rate of 0.2% versus the previous quarter, which would be the slowest rate since last year. In the US, the inflation rate is gradually approaching the 2% mark.
  • Bond market: Bond markets have shown a muted response to Trump’s election victory but there are upside risks for yields. We recommend keeping duration risks low for the time being.
  • FX market: The anticipated FX market turmoil did not materialise either. Currency markets are ignoring political uncertainty, initially focusing on fundamental issues, which suggests that USD sentiment is likely to remain positive for now.
  • Equity market: The DAX has robust valuation support during the current period of persistent political uncertainty with a fair DAX trading range between 10,000 and 11,500. But the rise of anti-establishment politics is a key mid-term headwind for equities.
  • Commodity market: Oil should move sideways until OPEC meets at the end of the month, as pressure mounts for supply cuts. Copper remains vulnerable to profit taking after the recent rapid rally. Although gold has not rallied it has medium-term potential to do so.

Nov. 10, 2016 (Tempus Inc.) – The U.S. Dollar is up against commodity-based currencies while staying relatively quiet against its major peers. Markets are acting in odds with what was predicted if Trump triumphed, but historically the business world prefers the prospect of Republicans who’ll likely come into power seeking less regulation and fomenting less intervention in the free market.

Trump’s trade, or rather anti-trade rhetoric, during his campaign has economists concerned, but thus far markets are rebounding, big league, after dropping for eight consecutive days. The greenback’s strength is due to data releases that satisfy the Fed’s requirements ahead of a gradual hike.

Jobless Claims were slightly lower than expected; helping to solidify the labor market’s strong run. Commodity prices are rising, stocks are thriving, and USD is appreciating. How long this will keep up is hard to tell, but the “buck” is holding steady for now. Populism succeeding is morphing how we gauge economic performance, so things could change quickly.


The Yen fell by over 5.2% in value since the U.S. election results showed Trump succeeding. The move was a surprise because Yen forecasters estimated the currency propelling as a safe-haven to a Trump win that would dismantle global markets. This didn’t happen.

Equities flourished and thus Yen declined as it usually does when risk-appetite grows. Japan’s economic situation is not great as deflationary pressures remain and wages remain stagnant, but experts foresee Yen rising by 17.0% by the end of Q1 2017 if Trump delivers on his message of upending globalization and outsourcing.


The Euro kept trending downward yesterday, losing ground in the midst of a shocking result in America and poor data out of the EU’s second largest economy. France produced some underwhelming figures as Industrial Production revealed contraction of 1.1% and payrolls grew at a measly 0.3% pace.

Now that the campaign in the U.S. is over, the spotlight may be on the Italian referendum coming in December in which the people will decide changes to the constitution and balance of power between executive and legislative branches. The political red-tape in Italy played a role in preventing much-needed bank and fiscal reform after the 2008 crisis negatively impacting the “old boot’s” ability to recover since then.

Nov. 6, 2016 (Commerzbank AG) – Has inflation returned?

The end of the oil price slump has raised global inflation rates in recent months. This raises a question of whether underlying inflation pressure will now also pick up again. One factor suggesting this is near-full employment in the USA, whilst the unemployment rate in the euro zone is now also falling at a similarly sharp pace to that observed in the USA following the end of the recession. However, the level of unemployment in the periphery countries is still so high that euro zone wage growth is unlikely to accelerate, unlike in the USA.

The Day After: What will happen after the US election?

Next Tuesday, Americans will elect a new president. Hillary Clinton’s lead seems to have shrunk recently, and the race is thus more open again. We analyze how markets would react to a Clinton or Trump victory. The latter should weigh on the dollar. From the perspective of the equity market, a President Clinton, combined with a Republican majority in Congress, would be the best case scenario.

Outlook for the week of 7 to 11 November 2016

  • Economic data: After much brighter sentiment indicators, the German “hard data” are due next week. Industrial production probably took a tumble in September due to seasonal effects but orders data are expected to be better.
  • Bond market: Volatility in major benchmark futures should rise with the outcome of the US presidential election looking an ever closer call. A Clinton victory would put the currently fragile equilibrium in 10y Bund yields to the test while a Trump victory should result in a fairly bullish upward move.
  • FX market: This month, the market is likely to pay little attention to the otherwise widely followed US labour market report, as the presidential election dominates. A Trump victory would be the less favourable option for the dollar and could prevent the Fed from hiking its key interest rate in December.
  • Equity market: Whilst a Trump presidential victory would negatively impact on the DAX, three global factors can be expected to provide support.
  • Commodity market: Oil prices are unlikely to react to the latest forecasts compiled by the energy agencies, and in the run-up to OPEC’s meeting at the end of the month, investors will adopt a wait-and-see stance. Gold seems set to lose some ground if Hillary Clinton is elected US president.

Nov. 4, 2016 (Tempus Inc.) – The U.S. Dollar stayed quiet overnight, but found some strength following the release of upwardly revised and steady employment data. October saw an actual increase of 161K jobs to the economy, coming in slightly under the expected 173K, but the previous month’s figures had an additional 35K.

Average Hourly Earnings also improved with year-on-year growth of 2.8% over the forecast 2.6% plus a revision of the month prior also registering higher. Unemployment stayed at 4.9%. The surging labor market has been a pillar of strength for the greenback this year and these numbers certainly help the odds of a hike in December when the Fed last meets.

Election woes are the main headline as we go into the last weekend before the year’s biggest risk event. Global indexes are still on the red and the streak of losses in equities is now eight days old. Mexican Peso and CAD remain on the decline as oil prices finish their worst week in 10 months. The positive indicators shall keep the dollar afloat, but the gains may be limited considering the risk-averse approach investors and traders are taking at the moment.


The Pound is closing the week about 2.0% stronger as it recovered with the help of a less dovish Bank of England. Pro-Brexit parliamentary lawmakers had accused BOE Governor Mark Carney of spreading too much pessimism post-Brexit referendum, but his confirmation as governor for the next 2 years calmed market fears as Carney holds a reputation for keeping things in order and being right about Brexit effects on the global economy.

More importantly, the official Brexit process is under threat as the UK’s High Court decided that an approving parliament vote will be needed prior to invoking Article 50 to start the British departure from the EU. The UK’s economy is keeping it together thus far, but we feel the pressure is still on and a determined EU will make the divorce very difficult to send a message to other potential dissenters.


The Euro lost ground this morning after U.S. NFP and wage prints boosted the chances of a Fed hike in December. The shared currency started November with a bang, appreciating by over 1.0% during the week. Euro-zone troubles are dissipating with economic data demonstrating that European Central Bank measures have worked, although slowly, to bolster growth.

Spain, the fourth largest economy of the EU, seems to be getting its act right by finally forming a coalition government that will enable it to push for further fiscal reforms. Unemployment going down is a big deal and the uncertainty holding markets down is likely going to keep EUR/USD pair in tight ranges.