February 4 2017

Jan. 5, 2017 (Commerzbank AG) – The risk of a trade war

President Trump wants to put an end to the allegedly unfair treatment of the US economy in global trade and reduce the foreign trade deficit. However, the Republicans’ destination-based cash flow tax is too complicated, and broadly-based import tariffs directed against China would be hazardous given that China can retaliate. In our baseline scenario, this culminates in trade policy skirmishes without breaking into a full-blown trade war, even though the risk of an escalating trade dispute has increased recently. Trump apparently sees international trade as a zero-sum game and is therefore likely to act tough to gain advantages for the US.

Outlook for the week of 6 to 10 February 2017

  • Economic data: December data from the German manufacturing sector are likely to come in on the weaker side due to distortions resulting from the timing of the Christmas holidays. However, this should not be interpreted as a sign of renewed weakness, since business sentiment has remained healthy until recently.
  • Bond market: Euro area bond markets are at a crucial crossroads as the renewed focus on elections and US policy risks compound the pressure from rising inflation. Some headwinds will fade over the coming weeks, but this should only make an impact once 10y Bund yields have climbed above the pivotal 0.50% mark.
  • FX market: The US government is talking the dollar down. Although it is not certain that it will be successful over the medium-term, this departure from traditions practiced for decades suggests that the recent USD weakness will continue near-term.
  • Equity market: Despite individual exceptions, the Q4 2016 results and 2017 outlooks released in the current reporting season have been convincing so far. Consequently, analysts are likely to make fewer downside revisions to their 2017 earnings expectations, which should provide additional support to the German equity market.
  • Commodity market: Oil will not be able to hang to its recent gains for long as it becomes evident that the supply-side shortfall in the wake of production cuts is not as great as first assumed. On the base metal markets, lower Chinese copper imports in January are likely to hit sentiment whilst gold continues to respond to dollar fluctuations.


Feb. 4, 2017 (Tempus Inc.) – The U.S. Dollar is trending in a negative direction following the U.S. Non-farm Payrolls report and stellar data out of the Euro-zone and growing concerns over the unpredictability of President Trump’s administration. The U.S. economy added 227k jobs in January, up from 156k in December, but the drop in wage growth means less inflation and reduced odds of more aggressive rate hikes by the Fed.

Markets are also worried that President Trump’s tough and confusing stances on immigration as well as travel could negatively impact business activity across the globe. More concerning was yesterday’s firing of Sally Yates who as Attorney General stood against the controversial measures which deemed her as too soft on immigration. The Bloomberg Dollar Spot Index is down by 1.9% since January 20th.

The Dow Jones, S&P, and NASDAQ indexes have tumbled after reaching record highs. With trade agreements also on the chopping block, there is little in terms of stability at the moment.



The Japanese Yen is up this morning after the Bank of Japan’s policy meeting in which the outlook for economic growth was upgraded. No changes were made, but the tone was positive and the commitment to quantitative easing will be there to keep credit flowing.

BOJ Governor Haruhiko Kuroda did not criticize Trump’s statements regarding the perceived unfairness of trade agreements with Japan and others, but did point out that protectionism only serves as an obstacle to progress in an already globalized world.

Kuroda also explained that the BOJ does not have an exchange-rate target in mind and, once again, BOJ meetings are leading to Yen appreciation. The currency of the rising sun is up 4.0% since its weakest level of the year reached during the first week of January.



The Euro is up as a result of better-than-expected inflation data and likelihood of reassessment of loose monetary policy by the European Central Bank. Inflation for the Euro-zone revealed a 1.8% annual increment for the first month of the year, the best pace of growth in four years. A lot of it is owed to higher costs of energy, but puts the level near the ECB’s 2.0% target for price-growth.

Additionally, a trade advisor for the White House described the Euro as “grossly weak,” which in turn has benefitted Germany greatly, he said. These types of statements not only move markets, but are preambles to more incendiary statements that could signal a trade/currency war, which no one would want to be involved in. Euro is up 3.3% thus far in 2017.