November 25 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.