January 2017

Jan. 28, 2017 (Commerzbank AG) – Trouble ahead between Trump and Fed?

The Fed plans to raise interest rates, whereas President Trump wants stronger growth. Thus, a conflict is looming between the Administration and the Fed. However, Janet Yellen and her deputy Stanley Fischer are both likely to step down by mid-2018, and Trump is unlikely to nominate a Republican hardliner such as John Taylor to succeed Yellen. A more likely choice would be a pragmatist from his own circle. Such a choice would support our view that monetary tightening will only proceed cautiously.

Further topics:

Brexit: Struggling to take back control

Prime Minister May highlighted that the government remains committed to triggering Article 50 by March and is prepared to leave the Single Market. But in contrast to her previous statements, parliament will be allowed a vote before Article 50 is initiated and she has conceded that further detail of the plans will have to be set out in a white paper.

Outlook for the week of 30 January to 3 February 2017

  • Economic data: The inflation rate in the euro zone should have risen sharply again in January to 1.4%, and in Germany possibly as high as 2%. Even if the core inflation rate in the euro zone is set to remain below 1%, it could fuel speculation about a turnaround in ECB monetary policy. In the USA, the labour market continues to run smoothly.
  • Bond market: Prior to any more sustained market stabilisation, Bunds will have to ride out a storm of high profile risk events and macro data releases.
  • FX market: The currency market is waiting for the Fed to release the statement of its monetary meeting next week. But even if the Fed were to stick to its upbeat view of the economic outlook, this is unlikely to support the USD.
  • Equity market: Bearish investors have been depressing the P/E valuation of DAX auto stocks and are no longer willing to hold exposure to the DAX auto sector. In our view, this stance is too pessimistic.
  • Commodity market: The price of Brent threatens to slide back below 55 USD again next week. On the base metals markets, trading volumes remain limited, on account of the Chinese New Year, but encouraging PMIs should keep the mood buoyant.


Jan. 27, 2017 (Tempus Inc.) – The U.S. Dollar is currently losing ground against most of its counterparts following disappointing data for the fourth quarter. Gross Domestic Product was expected to grow 2.2%, but instead the figure came at 1.9% making 2016 the worst year for economic growth since 2011. Adding to concerns of a slowdown were Durable Goods which did not expand an estimated 2.5%, but rather contracted at (-0.4%). The numbers are a contradiction to the positive momentum across global markets this week when we’ve witnessed record highs for the Dow Jones, NASDAQ, and S&P along with resurgence in commodities.

In addition to poor data, yesterday’s announcement of plans to build the wall and charge as high as 20.0% tariffs on incoming Mexican products left a nasty taste for economists. This represents a declaration of war on trade and the animosity in regards to Muslim as well as other immigration is fomenting not just uncertainty, but bewilderment. The U.S. Dollar is vulnerable to statements from the current administration as it pertains to global competitiveness, but also its tone in managing established relationships with neighbors and other nations.


The Yen had a tough week as a result of booming markets and policy divergence. The Bank of Japan will meet next week on January 31st to announce its policy decision, which could bring the currency down further. USD is rising after the BOJ increased its purchases of bonds this week, a sign that they may feel the need to provide an even more accommodative environment. Yen is down 2.3% for this week on the basis of market optimism and gains.

Prime Minister Shinzo Abe has shown fondness of Trump and will be visiting soon at a date note yet determined. It’s possible that with Trump’s interest in bilateral agreements, some framework may come along this year in which the two countries align new trade terms as well as permitting Japan to increase its military capabilities. Now that the U.S. will not pursue the Trans-Pacific Partnership, the country must establish a way to maintain influence and good relations throughout the Pacific, where Japan may prove to be its only true ally.



The Euro was down as a whole for the week, but may recoup all losses by the end of today’s trading session. German confidence was as solid as expected, but more impressive is the lower unemployment rate in Spain, which fell to 18.6%.

Part of the troublesome PIGS (Portugal, Ireland, Greece, and Spain), the Iberian nation has improved its economic prospects practicing fiscal discipline and benefitting from economic pick-up in the region. Although downside risks have kept the Euro in familiar ranges for the last 3 weeks, indicators have been positive and we may face short-lived rallies as we enter February ahead of elections with potential to affect the Euro-bloc in March.


Jan. 22, 2017 (Commerzbank AG) – Ronald Trump?

Donald Trump will today be sworn in as the 45th President of the United States. The style and substance of US politics are set to undergo what is probably the biggest change since Ronald Reagan took office in 1981. However, Trump is unlikely to have the resounding success that Reagan enjoyed; he is starting his term as President in a very different economic situation. Nevertheless, his administration may be viewed as a success if an economic recovery is established across the board and the promised deregulation really does follow.

Further topics:

Turkey: Risk of chaos without higher interest rates

The economy on its knees and a currency under huge selling pressure point to a Turkish economy in trouble. The central bank is still shying away from higher interest rates as political pressure mounts, but they are unavoidable if the lira is to be supported.

Outlook for the week of 23 to 27 January

  • Economic data: US GDP figures for the fourth quarter due to be released in the week ahead ought to show that economic growth was again solid, albeit unspectacular, at around 2%. In the euro area, sentiment indicators should have peaked.
  • Bond market: Although the ECB meeting is behind us, investors may still act hesitantly in the wake of Trump’s inauguration as US president.
  • FX market: The USD will remain torn between the Trump view that the dollar is too strong and the Fed view that interest rates will rise further. The Fed is likely to retain the upper hand for now, pushing up the USD. The Brexit debate will also continue simmering next week. However, the latest pound appreciation is unlikely to be sustainable.
  • Equity market: Clearer statements on the nature of Brexit have lent tailwind to the German equity market and the British pound. We still believe that the upcoming Brexit will have very little impact on German companies initially, even those with a high share of sales in the UK.
  • Commodity market: The price of a barrel of Brent oil should continue to hover around 55 USD for now as the OPEC monitoring committee expresses satisfaction that promised production cuts are being adhered to.

Jan. 15, 2017 (Commerzbank AG) – Global economy – Sentiment better, problems over?

Brighter sentiment indicators around the world indicate that the global economy shifted up a gear at the end of 2016. But for how long? We are sceptical about prospects in China and the US; in China, structural problems are soon expected to rise up the agenda, while in the US already-high capacity utilization rates should prevent a further growth acceleration. In the euro zone too, the economy is unlikely to sustain the higher pace that emerged in recent months. That said, the gradual rise in lending shows that the stimulus from very expansionary ECB monetary policy is having a positive impact. Euro zone growth in the next two years may therefore exceed current expectations.

Further topics:

Forecast changes: stronger growth

At our monthly forecast meeting, we revised up our euro zone, German and US GDP growth forecasts. One factor behind this is the faster pace emerging for the winter half year.

ECB meeting: ECB should stay true to its line

After the December decision to extend the bond buying programme to the end of 2017, the ECB Council will adopt a waiting stance at its meeting on Thursday. It will make it clear that despite recent positive data, the Council is not planning to enter the exit phase.

Outlook for the week of 15 to 20 January

  • Economic data: In the US, we expect to see December industrial production post the largest monthly gain since May 2010, as “hard” data reflects recent sentiment indicators. Chinese GDP likely expanded strongly again in Q4 (6.7% y/y).
  • Bond market: We look for the Bund curve to steepen again and reiterate our call to reduce peripherals exposure amid the current spread tightening move.
  • FX market: Dollar investors will to wait until Mr Trump is inaugurated before they can hope to get in-depth details on his economic programme which suggests the dollar will not benefit from any tailwinds for now.
  • Equity market: 2017 EPS forecasts in European markets have enjoyed positive upward revisions of late although US markets have been less fortunate due to the recent dollar rally.
  • Commodity market: Brent oil should continue to hover around 55 USD next week although we believe this is unjustifiable in the medium term as US supply rises.

Jan. 14, 2016 (Tempus, Inc.) – The U.S. Dollar is trading in familiar ranges after losing ground throughout yesterday and overnight sessions. Stock indexes fell flat as traders start weighing divergent outlooks and political downside, as well as upside, risks. Investors are not as prone to take risks at the moment, but the Dow Jones is close to hitting 20,000 points while the greenback continues to swim around multi-year highs against most peers.

There is no major data to push further momentum, but in today’s markets anything is possible. Fed Chairwoman Janet Yellen will be speaking at a few engagements in the coming weeks prior to the January 19th meeting. We will monitor her influence, particularly at the Commonwealth Club in San Francisco on Wednesday January 18th.


The Yen has been on a tear, rising by 1.5% in the last two days. Markets starting to dwindle after being on a hot streak are starting to benefit the safe-haven asset. The Bank of Japan is slated to meet on January 19th where the bank could potentially add to their stimulus. More importantly, we want to find out if there is talk about coupling with fiscal policy as Shinzo Abe’s government rolls up its sleeves to boost growth in a much deflated country.

Also, will the Yen follow the 2016 trend of JPY appreciation after every meeting regardless of the decision? We shall see. In December, the trend switched, but the currency has stayed resilient unlike others.


Pound Sterling stopped falling, especially after Retail Sales for December revealed better-than-expected numbers. The “Hard Brexit” possibility is very real since UK lawmakers are starting to blatantly disregard any effects that leaving the European single market may bring.

Indeed, the Brits seem excited about the possibilities of working their own agreements, but ignore the potential everlasting damage of separating financial and business ties abruptly. Article 50 will likely be invoked by end of the first quarter, but now friction between the Prime Minister, the Conservative Party, and the Supreme Court will likely lead headlines in regards to the official Brexit process.

Jan. 2, 2017 (Commerzbank AG) – Investors will have to keep a close eye on politics next year. We believe Donald Trump’s policies will stimulate economic growth and inflation only to a limited degree. That said, his election has triggered a long overdue reappraisal of the US economy.

As in the USA, anti-establishment movements are expected to continue gaining support in the euro zone which could result in political paralysis. The risk of a renewed sovereign debt crisis weighs on the economy, especially as the ECB’s monetary policy is close to its effective limit.

In China, the economy is suffering from the fact that the state will continue to keep highly indebted state-owned companies afloat. 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.

WIll the strong USD trend continue?

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 U.S. dollar more than poor data will harm it.


Jan. 1, 2017 (Commerzbank AG) – Euro zone: Inflation rate leaps above 1%

The euro zone rate of inflation is likely to leap from 0.6% in November to 1.1% in December. Although this is exclusively due to energy price movements, the higher inflation rate should further drive up inflation expectations, to the ECB’s delight. Something the ECB may be less pleased about is the fact that the core rate will stick to 0.8%. In the USA, we are looking for another rise in the ISM index, in line with the global recovery in the manufacturing sector, as well as another solid employment report.

USA: Solid data to confirm the recovery

Given the more favourable results in the regional manufacturing surveys we expect the manufacturing ISM index to increase to 54.7 in December (consensus 53,7). Back in November, the index had already moved up considerably, from 51.9 to 53.2. As regards the US labour market, we are looking for a solid December report. We expect payrolls to increase by 180 thousand, which would be in line with the current trend (consensus 175 thousand). Following its strong decline in November, the rate of unemployment appears to be in for a minor counter-movement. As regards average hourly wages, where the monthly changes are significantly distorted by calendar effects, we are looking for a marked increase of 0.3% after previous months’ drop. Wage pressures remain on the increase.