Dec. 24, 2016 (Commerzbank AG) – China grapples with capital flight
China is still battling a major exodus of capital. As we expected, the government has responded by reversing recent steps to deregulate capital movements. Since the beginning of this month, companies face the prospect of no longer being able to transfer dividend payments abroad. These measures may help to apply the brakes in the short term, but in the longer term they will deter potential investors. In the medium term, further capital controls seem more likely than a return to the cautious deregulation of recent years.
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.