April 30 2017

Apr. 29, 2017 (Commerzbank AG) – 100 days of Trump – and the next 1361?

President Trump has not done too well in his first hundred days. Market enthusiasm in the first few weeks is therefore slowly turning to disillusionment. That said, it is too soon to write off his presidency already. A substantial tax cut will come, but later and on a smaller scale than expected. The trade war feared by some will not happen, but protectionism will remain on the agenda and could especially affect Germany.

Further topics:

Fed to shrug off Q1 and remain on course

After raising rates in March, the Fed will remain on hold at its meeting next week, leaving the target range for the federal funds rate at 0.75%-1.00%. It will probably dismiss both the slowdown in growth in Q1 and the surprisingly low inflation in March as statistical outliers. The US central bank remains on course for monetary policy normalisation and will likely raise rates twice more in 2017.

Outlook for the week of 1 to 5 May 2017

  • Economic data: In the US, the surge of sentiment indicators is probably over, but they still seem to be at relatively high levels. The April employment report should turn out much better than the March figures. In the euro zone, the economy probably grew in Q1 by 0.5% versus the previous quarter.
  • Bond market: With electoral risks in France subsiding, the Fed’s policy upcoming decisions will be in markets’ focus. Even though the next funds rate move is not expected in May, the FOMC will re-iterate its hawkish stance. Bund yields should trade in a well-established 0.20-0.50% range.
  • FX market: Next week’s FOMC meeting is unlikely to provide much impetus for the dollar.
  • Equity market: Stretched equity valuations suggest that selective stock picking is becoming ever more important. We retain a preference for companies willing to restructure, with a high US market share and earnings showing a positive reaction to a stronger US dollar.
  • Commodity market: Oil prices look set to recover in the week ahead. Solid sentiment indicators ought to point to robust oil demand, whilst declining US oil inventories look set to signal that supply is tightening.


USA 

Apr. 28, 2017 (Tempus Inc.) – The U.S. dollar came under pressure early last night as geopolitical tensions are back in the headlines. In an interview with Reuters, President Trump said it was possible that there will be a “major, major conflict” with North Korea if diplomatic solutions fail. The comment would have been out of the ordinary from past administrations as North Korean leaders believe they are defending themselves from a pending attack from the U.S. and its allies.

This morning’s economic data will is unlikely to give the greenback any reprieve. The U.S. economy expanded at its slowest pace in three years in the first quarter of the year. GDP, the value of all goods and services produced, rose 0.7% on a year over year, failing to meet expectations of 1.0% growth. The data shows a noticeable dip from the 2.1% expansion in the 4th quarter of 2016. A breakdown of the number shows that consumer spending, the biggest part of the economy, rose 0.3% representing the worst performance since 2009.

Nevertheless, the poor data may not dissuade the Federal Reserve from normalizing monetary policy. Indeed, future show a nearly 70% chance that the Fed will raise interest rates at their June meeting, up from 50% odds a week ago.

EUR

The Euro popped higher and continues to flirt with 5-month highs against the U.S. dollar as inflation in the Eurozone accelerated. Core inflation rose 1.2% in March, higher than the 1.0% forecast by economists and represents the fastest growth in almost four years. Inflation grew 0.7% the month prior. Other reports showed signs of optimism in the Eurozone. Spanish GDP showed 0.8% growth and French growth ticked 0.3% higher.

GBP

The British pound gained against the U.S. dollar despite poor economic data released in the United Kingdom. Gross domestic product rose only 0.3% in the first quarter, less than the 0.4% median estimate of economists. The number represents the slowest growth in a year.

The sterling is set for its second monthly advance versus the U.S. dollar. The bulk of the pound’s strength came after Prime Minister Theresa May announced a snap parliamentary election for June on April 18th.