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.