November 6 2016

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.