April 9 2017

Apr. 9, 2017 (Commerzbank AG) – Why wages are rising so slowly

In the US and in Germany we are almost at full employment but wage growth still remains low. We examine the possible causes of this unusual situation. Key factors include the weaker negotiating position of employees against a backdrop of globalisation; the disappointing productivity trend and low inflation expectations. These forces which act as a brake on wages will at best diminish very gradually. This is especially true for the euro zone where the ECB will not hike rates any time soon.

Further topics:

Forecast meeting: Brief euro high

Stronger leading indicators will make it easier for the ECB to sell a “tapering” of bond purchases. But modest core inflation and ECB rates on hold suggest that although EUR/USD could rise to 1.12 by autumn, this is unlikely to be sustained and EUR/USD would then fall back again.

Outlook for the week of 10 to 14 April 2017

  • Economic data: While US consumers are in high spirits, they probably showed some buying restraint in March. In the euro zone, industrial production in February will reveal whether the economy actually moved up a gear at the beginning of the year.
  • Bond market: Amid a short trading week, Bund yields and EGB spreads are running into a liquidity drought though markets could be rattled by a whopping (net) supply at mid-week. EGB spreads should retain their erratic pattern through the week.
  • FX market: In the short term, the dollar will probably gain some ground against the euro amid positive US labour market data and concerns about possible US protectionist measures. However, the euro should maintain the upper hand in the coming months.
  • Equity market: A number of factors suggest that we could be set for a favourable Q1 reporting season. As a result, analysts ought to be more optimistic about the earnings expectations of many companies within the DAX and MDAX.
  • Commodity market: Brent should be able to hang on to its latest gains, as both IEA and OPEC are expected to confirm that the burden of production cuts is more evenly distributed. The IEA is also expected to indicate that the OECD countries have not yet cut inventories, but that this is merely a question of time.


USA 

Apr. 7, 2017 (Tempus, Inc.) – Global markets across all asset classes experienced heightened volatility as news broke that the U.S. launched a missile attack on Syria in response to the regime’s chemical attack on his own people earlier this week. Global equity markets shot lower and safe-havens, including gold, benefited. The Japanese yen and the Swiss Franc, traditional safe-haven currencies, also found knee-jerk support before reversing most of their gains. The quick reversal shows that markets expect the attack to be an isolated incident. However, the true fallout from the military action is unclear. Russia has already condemned the attacks as act of aggression against a sovereign state. Russia has been propping up the Assad regime in Syria for years and Russian soldiers are currently on the ground in Syria. The attack could also be seen as a warning to North Korea as the U.S. has shown it is willing to act unilaterally against rogue nations. Near-term headline risk and longer-term risk-off potential could spark more volatility.

Despite modestly benefiting from risk aversion trades overnight, the U.S. dollar found resistance this morning following poor jobs numbers. Payrolls rose by only 98K in March, failing to meet an already dismal 180K estimate. Adding insult to injury, last month’s print was also downwardly revised. In addition, wage growth slowed to 2.7% year over year, down from 2.8% in February. Some may see today’s number as an aberration or blame winter weather in March, but nevertheless, the poor reading will pour cold water on future interest rate projections.

Despite the dismal prints, the U.S. dollar has reversed course and is currently gaining across the board.

EUR

The Euro initially climbed overnight, benefiting from strong German industrial orders. However, the common currency has since succumb to general dollar strength and is about three-tenths of a percent weaker. German industrial production unexpectedly rose in February, led by the construction sector. Output rose 2.2%, beating expectations of a 0.2% drop.

GBP

The British pound was initially immune to Syria-related trades. But the currency came under pressure on reports that U.K. manufacturing and construction dropped. Manufacturing declined 0.1%, construction fell by 1.7% and industrial production dropped 0.7%. All of the prints were below expectations.