European Central Bank

Apr. 14, 2017 (Tempus Inc.) – The U.S. dollar is still reeling after a sharp sell-off yesterday afternoon. The Bloomberg Dollar Spot Index dropped below its 200 day moving average after President Donald Trump said the dollar is “getting too strong.” Many analysts have labeled the comments as “verbal intervention” to weaken the greenback. In the same interview he reversed previous promises that he would label China a currency manipulator and that Fed Chair Janet Yellen is “not toast” when her term expires next year. With no other risk events on yesterday’s docket, traders were forced to react to the President’s comments.

We will also continue to keep an eye on geopolitical risks in Syria and Korea.

Today’s data releases are unlikely to help the greenback. Wholesale prices in the U.S. declined in March for the first time since August of 2016. The print shows a lack of inflation pressures and will keep pressure off of the Federal Reserve to raise rates at their next meeting in May. Headline PPI decreased 0.1% following a 0.3% advance in the prior month. Later, the University of Michigan consumer sentiment print is expected to show a slight dip in April to 96.5 from 96.9 in the month prior.

AUD

The Australian dollar was the big winner overnight, gaining almost a full percent against the U.S. dollar. The Aussie was buoyed after data showed full-time jobs climbed the most in almost 30 years last month. Overall, employment rose 60,900 in March, beating forecasts of a 20K increase. The Aussie found added support on strong Chinese trade data. Chinese imports increased 26.3% year over year which is good news for Australia as nation relies heavily dependent on exports to China.

EUR

The Euro shot higher yesterday afternoon, benefiting from President Trump’s verbal intervention. The common currency has since given back most of its gains as political uncertainty in France looms over the currency. Inflation prints in France and Germany came in as expected. Inflation across the Eurozone has spiked higher over recent months, but we believe they have reached a peak. We do not expect the European Central Bank to change policy this year.


USA 

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.

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.

Apr. 1, 2017 (Commerzbank AG) – Euro zone – boost from the East

Corporate sentiment in the euro zone has improved massively in recent months, probably due mainly to demand from Asia picking up again. The main thrust seems to be coming from China. Despite that country’s continuing structural problems, the boost from the East should continue for the time being, and thus prevent a marked drop in sentiment indicators. However, since high private-sector debt levels are still weighing on domestic demand in the euro zone, there is probably only limited upward scope for Ifo and other indicators.

Further topics:

Turkey: Stable lira is a sham

The Turkish lira has stabilized since the beginning of the year, but there is no reason to sound the all-clear for the lira. It has benefited from improved sentiment against emerging markets currencies of late which has driven other EM currencies markedly up.

Outlook for the week of 3 to 7 April 2017

  • Economic data: Yet again, March will probably have seen no change in the US in the gap between the upbeat mood throughout the economy and no more than average hard data. The employment report should continue to trace a positive though not overwhelming development.
  • Bond market: With speculation on early ECB rate hikes subsiding, Bunds look well underpinned going into next week.
  • FX market: The sharp rise in EUR-USD should be over for now. Not only sentiment but hard data as well are arguing for downside potential.
  • Equity market: US monetary indicators such as the strong M1 money growth and the relatively steep US$ yield curve indicate that the S&P 500 bull might run further.
  • Commodity market: The price of Brent is unlikely to change much in the week ahead, distinctly above the 50 USD mark.

March 31, 2017 (Tempus, Inc.) – The U.S. Dollar sustained most of its gains overnight and is looking to perhaps improve this morning based on solid economic data that once more signals inflation growing and consumption being steady. The Bloomberg Dollar Spot Index grew by 1.0% thus far this week, but the “buck” may be under pressure. Investigations over Russian ties to President Trump have taken a turn since last night when former U.S. National Security Adviser Mike Flynn said that he’d be willing to speak to interested authorities if promised immunity in the case. Political meddling between nations is a serious matter and that may keep the U.S. Dollar subdued.

Personal Income and Spending data this morning showed consistency as expected. Inflationary growth continues to rise as Personal Economic Expenditures grew 1.8% over the expected 1.7% estimate while also being revised upward from the prior month. Other Fed members will speak today, but we’ll keep close eyes mostly on headlines over Brexit negotiations, which might get ugly quick and the potential for scandal in the world’s highest office.

EUR

The Euro fell 1.8% this week, based on European Central Bank dovish commentary and now deflationary pressures. The Euro-zone’s inflation slowed to 1.5% last month, way below expectations of 1.8%, a figure closer to the desired 2.0% target set by the ECB. Although the political risk of France going rightist is fading according to polls that show Emmanuel Macron, the pro-further-globalization candidate, could win with a comfortable margin, there are growing doubts over Brexit talks and the future of the EU.

The Portuguese government is saying that Brexit shows the EU needs to be reformed, echoing the sentiment of other troubled nations that feel squeezed by austerity measures placed on them to prevent defaulting on debt. The struggles are very real with an economic recovery that may need further help from the ECB next year and political uncertainty across the continent. EUR could have room for losses in the next week, maybe beyond.

GBP

The Pound fell this morning based on underwhelming data revealing that fourth quarter GDP in 2016 negatively affected consumer spending as inflation rose quickly. Trade as a result of a weakened Pound benefited, but this means only the bigger players in the economy saw growth. Although prices may be on the rise for some products, they are falling where it matters most.

Housing prices in the UK fell for the first time in two years, a worrisome figure considering that the housing and property industry suffered the most after the Brexit referendum. In terms of Brexit talks, the European Union now looks committed to holding a united front against any UK perks, saying that Britain will not decide its fate when it comes to how the full separation will take place. Friction is in the air, certainly not love.

Mar. 25, 2017 (Tempus Inc.) – ECB – Will they, or won’t they?

There are signs in the euro zone that monetary policy may soon be changing course. Even the doves on the ECB Council are talking of possibly raising rates more rapidly than previously envisaged once bond purchases come to an end. This could happen if the economy and inflation fare better than the ECB is currently predicting. However, there are strong counter arguments against this optimistic scenario. Inflation, for example, will probably fall more rapidly over the coming months than the ECB is assuming.

Outlook for the week of 27 to 31 March 2017

  • Economic data: The core inflation rate in the euro zone is likely to have fallen from 0.9% to 0.7% in March, though a (temporary) surge to 1.0% is likely in April. This is all down to the timing of the Easter holidays, which fall in April this year against March in 2016.
  • Bond market: Government bond yields are edging lower again as markets put reflation expectations from Trump’s stimulus plans to the test. Ten year Bund yields look likely to push the floor of the recent trading range lower. Elsewhere, the Corporate Schuldschein segment should continue its growth.
  • FX market: US and euro zone politics recently provided tailwinds to EUR-USD. However, amid ongoing political risks in the euro zone, the further euro upside should be limited. As the UK announces its Brexit intentions, GBP should also come under renewed pressure.
  • Equity market: Amid the still-very positive overall conditions, German companies should make further acquisitions this year. This will push goodwill on DAX company balance sheets still higher. Under gloomier general economic conditions, write-downs might become necessary, which could painfully reduce the equity capital of some companies.
  • Commodity market: Brent is likely to fluctuate around USD 50 per barrel next week. While we are likely to see signs that OPEC also cut production in March as agreed, the likely further rise in US inventories will show that supply remains ample, arguing against a price recovery.

Mar. 18, 2017 (Commerzbank AG) – Le Pen – What if?

According to the polls, Marine Le Pen has little chance of becoming the next French president. But uncertainty is high and many investors want to know what would happen if Le Pen were to win. Might she call an EU referendum? Would there be a flight of capital? Would Draghi and Merkel rush to help? Would EMU survive in the long term without France? In the short term, a Le Pen victory could, to say the least, produce chaos.

Further topics:

Brexit: The way is (un)clear

The legislation necessary to give the prime minister the authority to trigger Article 50 has now cleared parliament. But formal notification may only be delivered in the week of 27 March following the threat of another Scottish independence referendum and serious Brexit negotiations may not take place until June.

Outlook for the week of 20 to 24 March 2017

  • Economic data: Sentiment in the euro zone economy is running far ahead of the hard data and the longer this situation lasts, the more intensely the markets may discuss an exit from the ECB’s ultra-expansionary monetary policy.
  • Bond market: With the Dutch election and the latest Fed policy rates now behind us, investors’ focus will be on macro data releases, EGB supply and what Fed policymakers have to say through the week.
  • FX market: Currency markets look set to be in for a quiet week and the market will therefore likely focus on the fallout of the ECB and Fed policy. Political concern is likely to rise up the agenda, implying that the euro should lose ground against the USD.
  • Equity market: With 23 DAX companies announcing a rise in dividends last year, total payouts are likely to have risen by 8.8% y/y to a new all-time high of €31.8bn. A dividend yield of 2.6% is still relatively attractive compared to fixed income yields, which remains a key supporting factor for DAX investors.
  • Commodity market: The first exports and stocks data for non-OECD countries since the OPEC production cut are being eagerly awaited although oil prices should trend sideways until the next release of production data.

Mar. 17, 2017 (Tempus, Inc.) – The U.S. Dollar is trading in mixed ranges, mostly negative throughout the week after a more dovish outlook from the Fed and political developments in Europe that eased volatility. It is clear now that the Fed believes the economy is steady and that there are some uncertainties it wants to monitor such as sustainable wage increases and improved consumer spending.

Meanwhile in Europe, indicators have also kept the Euro-bloc on recovery, to a point where the European Central Bank can ease off the gas pedal when it comes to maintaining an accommodative approach. The greenback has weakened and the Bloomberg Dollar Spot Index is now at its lowest level since November 11th.

Treasury Secretary Steve Mnuchin is attending his first G-20 finance ministers meeting where he has already made headlines by working closely with his German counterpart Wolfgang Schaeuble and stating that the U.S. has no intentions of starting a trade war, but will not tolerate manipulation of currency fluctuations for unfair advantage. In terms of data, we’ll see if Industrial Production does anything to aid the “buck” when it’s released at 9:45AM. A 0.2% expansion is expected after it contracted last month.

EUR

The Euro strengthened by 1.3% throughout the week and it’s now at its best level in five weeks. The European Central Bank looks ready to step away from additional quantitative easing and some members are expressing optimism in their ability to hike the benchmark rate before the year ends. At 0.0% for main refinancing and negative overnight deposit rates, the central bank has exhausted its instruments in hopes of consistent growth.

Now that Spain is on the rise and inflation finally arrived, ECB member and governor of the National Bank of Austria Ewald Nowotny has spoken in favor of an end to loose monetary policy. He thinks the right time is now before prices go up too high.

There are downside risks in the horizon, politically especially, but the EUR may stay around current levels with some upside if data continues to impress in the next few months.

GBP

The Pound has rallied almost 2.0% this week bringing it to its strongest level against the dollar since the month started. Prime Minister Theresa May does have the power to invoke Article 50 to initiate the Brexit and polls in Scotland indicate a call for independence from the UK would not be welcome by an overwhelming majority. It would be a very tight race.

However, her determination and confidence could be tested once the process starts because the European side of the equation may not be so easy to solve. Scottish National Party leader and first minister Nicola Sturgeon warns that economic concerns in her nation are only going to be exacerbated if there is no access to the single market. She truly believes Scotland is ready for freedom.

On the monetary policy side of things, the Bank of England surprised us with lack of full consensus on their decision to keep rates unchanged. Kristin Forbes, who is leaving soon, dissented with her vote to hike. Although she may not influence any other meeting again, it looks like tightening is in the minds of more central bank officials than just in the U.S.

 

 

Mar. 15, 2017 (Tempus, Inc.) – As anticipated, the Federal Open Markets Committee raised rates by 25bps today, but the USD came under pressure due to the lack of clear guidance by the U.S. central bank on the amount of future rates hikes for the rest of the year.

Today’s economic data met expectations as Consumer Price Index and Retail Sales expanded by 0.1% each.

Markets rose overnight, helping some resource-based currencies that had been sliding for days. Oil prices declining hurt the commercial value of other commodities, but a report of lower than estimated inventories of shale oil in the U.S. put a stop to the bleeding. The neighboring CAD and MXN are improving as well as the oceanic NZD and AUD.

 

EUR

Despite of today’s post-Fed announcement rally, the EUR, a currency chained by the shackles of political uncertainty, will likely trade around current ranges until we get a clearer picture of results in the Netherlands and in France. Twenty eight parties are on the race for power so a coalition is expected to form in order to have a government.

Geert Welders, the rightist politician who could shake things up in regards to trade and immigration, has lost some steam recently and his Freedom Party members may not be able to gain much support from other parties unless their numbers are impressive. A lot is up in the air, but all we can do now is to wait for the chips to fall.

 

GBP

The Pound erased some of its early week losses because it seems not a majority of Scots are feeling the whole separation from the UK as much as their fearless leader. Although Nicola Sturgeon diligently started the legal process to establish a referendum asking Scotland if it wants to be independent, a few polls showed that 57.0% of those surveyed would like to stay British.

It seems like Euro-skepticism is not just a far-right phenomenon, but a growing sentiment amongst many across the continent that the Union may no longer be the best system for economic or social cooperation between nations. GBP is still on an almost 4.0% slide since the start of February. The instability will keep downward pressure on the “quid.”

 

March 11, 2017 (Commerzbank AG) – How much will the Fed tighten the reins?

The Fed is expected to hike interest rates next week – something virtually no-one envisaged at the start of the year, even though the central bank did hint in December at three moves in 2017. Since, in contrast with earlier years, the US economy seems set to proceed largely as the Fed expects this year, we expect the bank to stick to its timetable. Consequently, we envisage three rate hikes each in 2017 and 2018, somewhat more than the market is currently expecting.

Further topics:

Netherlands: no nail-biting affair for the euro

Next Wednesday, the Dutch electorate goes to the polls. Whilst the PVV of eurosceptic Geert Wilders should do better than in autumn 2012, it is unlikely to become part of the government.

Outlook for the week of 13 March to 17 March 2017

  • Economic data: The “hard” US economic data due out next week will once again probably not be able to keep pace with the recent strong rise in survey-based indicators.
  • Bond market: Despite a number of favourable trends, 10-yerar Bund yields are likely to trade fairly soft in the week ahead.
  • FX market: The FX market is in for a busy week: Besides a number of central bank decisions, the parliamentary elections in the Netherlands and the meeting of G20 finance ministers are on the agenda.
  • Equity market: Eight years ago the current DAX bull market started, and we look for continued gains into a ninth year, if not quite at the same pace as of late.
  • Commodity market: We do not expect the recent weakness of oil prices to portend a sharper decline, although we look for weakness to persist in the medium-term.