January 29 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.