December 17 2016

Dec. 17, 2016 (Commerzbank AG) – Gold: better times ahead

Recent pressure on the gold price is likely to become less significant over the course of next year. Indeed, ultra-loose global monetary policy, which results in low real interest rates, and great political uncertainty are likely to provide a tailwind for gold prices. We expect gold to rise to 1,300 USD per troy ounce by the end of 2017.

Outlook for the week of 19 to 30 December 2016

  • Economic data: We look for a further rise in the German Ifo business climate index in December, which would be a further signal that the German economy has picked up more momentum at the end of the year.
  • Bond market: The latest Fed rate hike may prove a good opportunity to increase duration. In the euro zone, 10y benchmark yields will follow an erratic path in the current low liquidity environment.
  • FX market: The markets are taking the Fed at face value when it suggests that rates are likely to rise more sharply. The market will therefore probably react asymmetrically: good data should help the dollar more than poor data will harm it.
  • Equity market: DAX dividends in FY2016 are expected to rise by 5% versus the previous year, which is a key bullish signal for German equities.
  • Commodity market: The price of Brent oil is likely to remain virtually unchanged until year-end as only January will tell whether OPEC will in fact reduce its supply. Base metal markets, too, are likely to extend their current-year gains into the New Year.


USA 

Dec. 16, 2016 (Tempus, Inc.) – After an historic rally over the past day and a half, the U.S. dollar opened this morning slightly weaker against its European counterparts. Nevertheless, the greenback remains at historically strong levels. The rally begun late Wednesday after the Federal Reserve’s “dot plot” showed the central bank was slightly more dovish than earlier in the year. The rally continued yesterday and saw the Dollar Index (DYY) reach its highest level since 2002. The dollar touched its strongest level versus the safe-haven yen since February.

The fundamental data also help reinforce the “buck” as consumer inflation continues to build and give the Fed reason for additional rate hikes. This morning’s data disappointed but is unlikely to seriously dent the dollar’s bullish run. Housing starts fell by 18.7% in November, missing an already bearish expectation of a 7.0% contraction. Expect the focus to continue to remain on the Federal Reserve and policy divergence. While the dollar may still have room to improve, it would be prudent to watch for a forceful reversal if U.S. data begins to slip.

EUR

The Euro managed to stop the bleeding against the U.S. dollar overnight but remains near historically weak levels against its American counterpart. The common currency broke fresh 13-year lows during yesterday’s session on broad dollar strength and diverging monetary policy.

The European Central Bank extended its quantitative easing program last week as the Fed tightened policy for the first time this year on Wednesday. The Euro may have found minimal support after a report showed service and manufacturing expanded last month.

GBP

The British pound was also able to recoup some losses against the U.S. dollar but remains lower than earlier this month. The Bank of England kept rates unchanged yesterday; a day after the U.S. raised interest rates. While the Bank of England said that the Brexit vote had a limited initial effect on consumers, we may soon see proof to the contrary as U.K. companies look to hike prices.

Indeed, the Confederation of British Industry’s December survey shows that manufacturers expect to lift prices by the most in more than five years over the next six months as the pound’s plunge is boosting companies’ costs and forcing them to respond. The CBI said the sterling’s 17% depreciation “continues to ramp up pressure on prices.”