January 23 2017

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.