Gross Domestic Product

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.


USA 

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.

March 10, 2017 (Tempus Inc.) – This morning’s Employment Situation figures validate the labor sector’s consistent good run, but the U.S. Dollar is not reaping any benefits. Thus far, EUR, CAD, AUD, NZD, and the Nordic currencies are up against the “buck” by half a percent since the release. The data also revealed that Avg. Hourly Earnings grew at a 0.2% pace, less than the expected 0.3%, but January’s numbers were revised upward. It’s likely that market reaction thus far reflects a sentiment of certainty over a March hike, but that the indicators are not solid enough to price in three hikes for the year.

Optimism elsewhere is also pushing the greenback lower. Canadian unemployment fell to 6.6% and 15K jobs were added. It was estimated that there would actually be a contraction of about 5K jobs so this helps the “loonie” mitigate losses from oil prices sliding. The hawkish tone of the European Central Bank can also be interpreted as a sign of waning policy divergence between the two regions as the central bank prepares to get step away from intervening and using economic crisis rescue measures. BDXY, Bloomberg Dollar Spot Index is down almost half a percent.

 

EUR

The Euro is at its highest level since February 16th, rising on the basis of a much better outlook from the ECB. Officially, the next nine months will have less sovereign bond purchases and ECB President Mario Draghi explained that there was reason to upgrade inflationary targets for 2017 and 2018. The risks to growth have also diminished, which has Euro bulls raving.

Although we still believe the mounting political problems in Europe will keep gains subdued, the ECB’s ability to slowly start to retreat from injecting any help into the economy of the Euro-bloc is an appreciating element for the shared currency. Any major changes to the fluctuation will not be a surprise as the EUR/USD pair has been wild since last year’s election.

GBP

Pound Sterling was under pressure until the U.S. NFPs came out, primarily losing ground on the basis of underwhelming data on their side of the Atlantic. Britain seems to be in trouble. Industrial Production contracted almost as much as expected by 0.4% last month. More worrisome, Manufacturing contracted by 0.9%, worse than the foreseen (-0.7%).

Along with trouble in both sectors, the trade deficit was higher than expected while also revised higher for January. Coming up with a Brexit deal that shall be presented once Article 50 is invoked has kept Pound on a depreciating trend, but now that fundamentals seem under threat, we believe GBP is still in search of a bottom. The “quid” is 3.9% weaker than its 2017 high reached on February 1st.

Mar. 4, 2017 (Commerzbank AG) – Euro zone – Is inflation about to strike back?

The rise in the euro zone inflation rate to 2.0% in February was solely due to higher energy and food prices. But the signs are growing that underlying price pressure is set to rise. The unemployment rate has steadily fallen and inflation expectations have noticeably picked up of late. However, as wages have risen modestly so far, the core inflation rate is only set to rise gradually in 2018. The ECB is unlikely to change its course for a long time yet.

Further topics:

Forecast meeting: What will the Fed and the ECB do?

Our monthly forecast meeting focused on central banks. Now that even the doves within the Fed are calling for an imminent rate hike, we expect rates to be adjusted as early as mid-March. As regards the ECB, we now envisage a slower reduction of bond purchases than previously.

ECB Council meeting: wait and see

At the press conference, we expect ECB president Draghi to confirm that the bond purchase programme will continue as planned in its entirety. However, the Council is likely to refrain from offering any further long-term tenders for the time being.

Outlook for the week of 6 March to 10 March 2017

  • Economic data: The US employment report for February is likely to show that the US economy is still creating new jobs and wage pressure is slowly increasing.
  • Bond market: Central banks will move into focus next week. There are mounting signs of a Fed rate hike as soon as mid-March, which will keep the upward pressure on ten-year Bund yields alive.
  • FX market: Although the Fed is set to raise interest rates at a slightly quicker pace than we previously expected, we maintain our forecast of only moderate USD appreciation this year.
  • Equity market: Most of the company results released so far have turned out convincing, with MDAX companies outperforming their DAX peers. A stable earnings environment should continue to support the German equity market.
  • Commodity market: The price of Brent oil fluctuating around USD 55, and the five-year outlook from the International Energy Agency is unlikely to lead to any big changes in the market view on oil.

Feb. 25, 2017 (Commerzbank AG) – Germany – Housing overpriced but boom continues

House prices in Germany keep on rising. According to our new model, they are now overpriced by around 10%. Only a marked rise in interest rates would be likely to end this boom and such a move is nowhere in sight. House prices should therefore continue to climb for the time being. This does not pose a great danger for the economy at present as the building sector is not yet over-inflated and the rise in private debt has been limited so far. However, the longer the boom lasts, the greater the risk that major imbalances will emerge whose correction would hit the German economy hard.

Outlook for the week of 27 February to 3 March 2017

  • Economic data: Euro zone inflation in February may well see a two before the decimal point for the first time in four years. While this could drive inflation expectations further up, it is likely that the inflation rate will soon fall again as underlying inflation pressure remains weak.
  • Bond market: The long-end of the curve is increasingly impacted by the Bundesbank’s sizeable €QE purchases in the one-year maturity sector. Moreover, investors remain nervous regarding political risks in France and Italy, while ample redemptions need to be reinvested. We therefore continue to expect Bund yields to trend downward amid a steeper curve.
  • FX market: Strong support in polls for the eurosceptic French presidential candidate Marine Le Pen continues to weigh on the euro. Speculation that strong US inflation will prompt higher rates continues to support the USD.
  • Equity market: High DAX valuations, notably inflated P/B ratios, have increased the importance of selective stock-picking. We favour companies with credible restructuring plans; that have a high share of sales in the USA and whose earnings react positively to a stronger dollar.
  • Commodity market: In the week ahead, the price of a barrel of Brent oil should remain range-bound around USD 55. Survey-based estimates of OPEC production are expected to confirm that the agreed output cuts have been largely implemented. Further support should come from upbeat sentiment indicators.

Feb. 23, 2017 (Tempus Inc.) – The U.S. dollar is fluctuating in a downward trend against most counterparts following the dovish reading of the Fed Minutes yesterday, in which the central bank seemed cautious about raising interest rates. The odds of a hike coming at the March 15th Fed meeting fell to 34.0% after trending in the 40.0%+ range.

Market watchers interpreted the Minutes as a sign of hesitation from Fed officials who appeared less concerned about inflationary growth exceeding their desired 2.0% annual target and want to see further consistency in economic growth. The outlook for the economy is a positive one, but that’s taking under consideration that the Fed is awaiting plans for major fiscal spending from the Trump regime.

We believe current ranges are bound to change next week as we enter March with a slew of data to digest. While the Fed’s policy may be on focus at the moment, the spotlight will turn to Europe and other developments abroad, which because of their negative nature, could hold the dollar afloat. Home Sales figures and consumer Sentiment from the Wolverines (Univ. of Michigan) will close out the week.

JPY

The Japanese Yen advanced overnight based on the pessimism behind the Fed rate outlook and downward stock markets across the Asian session. Once again the Yen is improving on being a safe-haven asset and the fact that policy divergence may not be a drag on the Yen in the short-term.

Also, day-trading of USD/JPY pair has increased in Japan where investors are jumping on the wild swings that occur from statements and uncertainty in the U.S. The currency couple that looked so boring just a few years back is the most exciting investment in a time of high volatility. JPY is up 1.8% since February 15th.

EUR

The Euro strengthened by over half a percent since noon yesterday as a result of major changes to the upcoming presidential election in France. Candidate Francois Bayrou announced that he would no longer seek to be head of state in order to support candidate Emmanuel Macron and significantly improve his chances of preventing a Marine Le Pen presidency. Ms. Le Pen has promised to do all she can to isolate France if elected by pushing for abandonment of the Euro and the European Union as well. Markets welcomed the news of the alliance.

We expect the euro to continue trading in positive ranges since it recovered from falling to its weakest level since January from political developments, but also because German and French data met expectations. Gross domestic Product in Germany and Business Confidence in France boosted the shared currency, but the effect may have been subdued by Italian Retail Sales that revealed a contraction instead of an expected expansion.

Feb. 18, 2017 (Commerzbank AG) – Emerging weaknesses

The catch-up process evident in many emerging markets now appears to have come to an end. Per capita GDP is no longer growing more rapidly than in developed markets, and this is set to continue as globalisation trends lose momentum and reform policy in many emerging markets becomes bogged down. In addition, rising US interest rates means that the decade of cheap money across the EM space is coming to an end.

Netherlands: How wild will it get with Wilders?

Geert Wilders’ anti-European PVV is expected to become the strongest single party in the general election on 15 March and will thus play a dominant role in Dutch politics. A “Nexit”, however, is an unlikely scenario.

Outlook for the week of 20 to 24 February 2017

  • Economic data: The euro zone PMIs should indicate that the region’s growth pace is unlikely to change in the first few months of this year. In the USA, the upward trend in residential construction continues.
  • Bond market: Political risks in the euro zone are likely to keep Bunds well underpinned through next week.
  • FX market: EUR-USD is expected to continue fluctuating strongly in the coming days, with the release of the FOMC meeting minutes likely to ensure a slight uptrend in the USD.
  • Equity market: The steep US yield curve and powerful global M1 money growth indicate that the equity bull market will continue into a ninth year.
  • Commodity market: The price of Brent oil is expected to hover around 55 USD next week. While gold remains in demand as a safe haven, soybean prices should come under pressure.