The Week in Focus: June 19 – 23 Outlook

June 17, 2017 (Commerzbank AG) – Euro zone: Recovery illusion

The ECB’s billions are increasingly filtering through to the real economy, thus putting the euro zone on track for several years of decent growth in the range 1½% to 2%. In many quarters this will be seen as a restoration of economic health. Anti-establishment political forces are losing ground, giving way to renewed proposals for further EU integration like those championed by France’s new president, and financial markets will show their approval. But after a period of decent growth, lasting perhaps two or three years, which suffices to reduce the degree of excess productive capacity, the spotlight will again fall on the economic weaknesses resulting from crisis-management policies designed to preserve the status quo rather than take the economy forward.

Outlook for the week of 18 to 23 June 2017

  • Economic data: The PMIs in the euro zone are expected to have declined in June. In the US, purchases of single-family homes have probably recovered following their April dip.
  • Bond market: With the Fed’s rate decision out of the way, USD interest rate swaps and also US Treasuries are in for some respite. In the euro area, the balance of directional risks in Bunds is to the downside rather than still lower 10y yields
  • FX market: Fed has maintained its view that the key rate will be raised a further four times until year-end 2018 whereas the market is pricing in far fewer rate hikes.
  • Equity market: For the coming summer months several bear trends suggest a DAX consolidation is on the cards.
  • Commodity market: We anticipate a temporary recovery in oil prices, possibly as early as next week, though the longer-term trend is downwards.

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