May 20, 2016 (Commerzbank AG) – This weekend, the people of Austria might well elect a eurosceptic president – and the next general election could see the election of a chancellor who is best described as euro-wary. Anti-EU forces are also on the march in other core euro zone countries. These countries pose much greater risks to the future of monetary union than those peripherals that have no desire to leave EMU. More than ever, the ECB will have to clear up the mess.
Fed: How high is the bar to a rate hike in June?
The majority on the Federal Open Market Committee wants to raise interest rates in June if economic data has improved by then. This is evident in the minutes of the April meeting that were released on Wednesday. We analyse how high the bar to a move in June is likely to be. All in all, we still believe the Fed is more likely to continue waiting. But there is a considerable risk that a rate hike is imminent.
Outlook for the week of 23 to 27 May 2016
- Economic data: The euro zone purchasing managers’ indices have been moving sideways since the start of 2015, arguing against a major acceleration of growth. This is unlikely to change with the May data, due out next week. .
- Bond market: Even though Fed rate hike risks are staging a comeback, current 10y Bund yields around 0.20% should attract investor interest. We hence expect recent trading ranges to remain intact though euro zone yields should tend to the downside again.
- FX market: Uncertainty over the Fed’s future course of action should remain high, partly because of the UK’s approaching referendum on EU membership, which will keep volatility in sterling exchange rates at elevated levels.
- Equity market: Discussions about a looming bear market are intensifying. But we believe such concerns are overdone and look to the pickup in global M1 money growth as an indication that sentiment is likely to turn more positive.
- Commodity market: Crude oil prices look set to rise again next week as production losses, notably in Canada, continue to support the market.