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Economic Research
Week in Focus
21 November 2014
Outlook 2015: Fed and ECB to go separate ways
While the Fed can be expected to raise interest rates in response to the robust US
economy, the ECB will counter painfully slow euro zone growth with broad-based
government bond purchases (QE), thus cementing its zero interest policy. Many
investors are under-estimating this divergence. German equities should outperform
their US counterparts. The key risk is a further downturn in EM.
Page 2
Look back to 2014: How good were our forecasts a year ago?
For the most part our forecast record was good! Although we overestimated US growth, we
correctly forecast the softening in China. For the euro zone, we were correct in expecting a
weak recovery and anticipating that the problems would move from the periphery to the
core. Although we were surprised by the renewed decline in Bund yields, we correctly
anticipated EUR-USD and yen weakness.
The Week in Focus in 100 seconds
Please follow this link for a video summary.
2013- actual1)
2014-actual2)
Commerzbank3)
Consensus4) Appraisal 5)
USA
2.2
2.2
2.8
2.6
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important to us!
China
7.7
7.4
7.5
7.5
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this edition of “Week in Focus“.
Euro zone
-0.4
0.8
0.9
1.0
Germany
0.1
1.4
1.7
1.8
France
0.4
0.4
0.5
0.8
Italy
-1.7
-0.3
0.2
0.5
Spain
-1.2
1.3
1.0
0.6
Growth
e
10-y Bund yields
1.85
0.82
2.2
2.3
EUR-USD
1.37
1.25
1.28
1.28
USD-JPY
103
117
115
105
Oil price (Brent)
111
77
107
107
DAX
9550
9425
10200
10200
1) Growth rates: 2013, market data: average Dec. 2013. 2) Growth: current Consensus, market data: average of 17 to
20 Nov. 2014. 3) “Week in Focus“ of 13 Dec. 2013. 4) Source: Consensus Economics of Dec. 2013. 5) Appraisal on
the basis of two questions: (1) Was the direction of growth and market data correctly anticipated? (2) How did the
forecast score as compared with the Consensus?
Momentous OPEC meeting: Next Thursday's regular meeting in Vienna is unlikely to see
an explicit reduction in OPEC production targets. As a result, the price of oil will likely initially
come under renewed pressure, but should rise again in the longer term
Page 5
Product Idea: In view of declining crude prices and the expected further depreciation of the
euro, a long-term hedge for diesel prices is an attractive option.
Page 6
Outlook for the week of 24 November to 28 November 2014
Economic data: In November, lower energy prices are likely to have pushed euro zone
inflation slightly lower, to 0.3%, and it could move towards zero in coming months.
Page 9
Bond market: European bond markets remain trapped between the headwinds of an
uncertain US rate outlook and the tailwind of ECB bond purchases.
Page 12
FX market: The announcement of elections in Japan continues to impact on the yen but in
the remainder of the G10 universe the focus remains on economic data.
Page 13
Equity market: We look for the DAX to surprise on the upside in 2015, reaching 10,800 by
year-end.
Page 14
Commodity market: Any tightening signals for the oil market from next week’s OPEC
meeting will be at best implicit. We thus expect crude oil prices to remain low.
Page 15
For important disclosure information please see page 18.
research.commerzbank.com / Bloomberg: CBKR / Research APP available
Chief economist
Dr Jörg Krämer
+49 69 136 23650
[email protected]
Editor:
Peter Dixon
+44 20 7475 4806
[email protected]
Economic Research | Week in Focus
Outlook 2015: Fed and ECB to go separate ways
Dr Jörg Krämer
Tel. +49 69 136 23650
Dr Ralph Solveen
Tel. +49 69 136 22322
There are signs that something unusual might happen next year. While the Fed can be
expected to raise interest rates in response to the robust US economy, the ECB will
counter painfully slow euro zone growth with broad-based government bond purchases
(QE), thus cementing its zero interest policy. Many investors are under-estimating this
divergence. The euro will probably lose far more ground to the dollar than most are
expecting. German equities should do much better next year than their US counterparts,
especially since Germany will be emerging from its economic doldrums. The main risk is
still a further downturn in the emerging markets. On average, crude oil is likely to trade
below $85.
Buoyant US economy – Fed getting serious
For some time we have been predicting that from next June, the Fed will begin raising the funds
rate by 25 basis points at every meeting. We expect the rate to reach 1.50% by the end of next
year. The process can be expected to end in early-2017 once a neutral interest rate of 4% is
achieved.
While members of the FOMC on average envisage much the same, most investors are
expecting the Fed to act far more hesitantly (see chart 1). Their standpoint is based on the
conviction that the US economy is not strong enough to cope with a tighter monetary policy.
However, in our view it is sufficiently robust. We are thinking here not only of the unemployment
rate, which at 5.8% is now not far from the Fed's full employment mark of 5½%, or the fact that
economic growth of 2.9% seems likely in 2015 (as against 2.2% this year). More to the point,
private households have been scaling down their debt in relation to disposable income back
down to the level of 2002, i.e. to the pre-debt bubble level. Moreover, US banks, unlike their euro
zone counterparts, are now as profitable as they were before the crisis. In these circumstances,
even the ultra-cautious Fed can afford to raise interest rates – especially since a pace of 25 bp
per meeting is modest compared with the average of its earlier rate hiking cycles.
Yet ECB reinforcing zero interest rates
In contrast to the Fed, the ECB is likely to continue relaxing policy in the new year. We continue
to forecast that at one of its first three meetings (January, March or April) the ECB will begin
large-scale purchases of government bonds. Our prediction is based on three arguments,
although we should stress that we do not favour such a course:
Weak economy: We envisage the euro zone recovery remaining painfully slow in 2015. Our
growth forecast of 0.8% (the same figure as this year) is still below the consensus prediction of
1.2%, with which the ECB says that it currently agrees. De facto stagnation in France (2015:
0.5%) and Italy (0.1%) will stand in the way of a real recovery, and there is still double-digit
unemployment (2015: 11.2%). These facts will support those ECB Council members who are in
favour of bond purchases.
CHART 1: Market underestimating Fed rate hikes
CHART 2: Germany supported by weaker euro
Expected Federal Funds Rate in December 2015 as per futures and
statements from FOMC members
Indicator of price competitiveness of German economy, Index
1999Q1=100 and percentage change on year
1,60
6
93
1,40
4
92
1,20
2
91
1,00
0
90
0,80
-2
89
0,60
-4
88
0,40
Jan-13
Jul-13
Jan-14
Market
Sources: Bloomberg, Commerzbank Research
2
Jul-14
Fed
-6
2011
87
2012
2013
Change on previous year (LHS)
2014
Index (RHS)
Sources: Deutsche Bundesbank, Commerzbank Research
21 November 2014
Economic Research | Week in Focus
Low inflation: As we expect growth to remain subdued in 2015, and the oil price to remain low
(barely 85 USD), our inflation forecast at 0.6% is also below the consensus (0.9%). The case for
QE is also supported by long-term inflation expectations, derived from inflation swaps for the
five-year period starting in five years' time (5x5 expectations), which are below 1½%, after
adjustment for risk premiums. In the ECB's view, inflation expectations are no longer anchored
just below 2%, as desired. Our below-consensus growth forecast for 2015 suggests that inflation
expectations will remain low, but the ECB is not prepared to tolerate this.
Balance-sheet target not met: The ECB's aim is to expand its balance sheet by €1,000bn.
However, sluggish GDP growth means that demand for loans is barely increasing, so that by the
end of 2016 banks will probably only have called on TLTROs to the tune of just under €400bn.
The purchase volume of comparatively illiquid covered bonds (€80bn) and ABS (€150bn) will
probably likewise prove disappointing (see chart 3). Ultimately, ECB President Draghi will
probably argue that there was no avoiding the purchase of liquid government bonds, although
we think it possible that the ECB might also buy up corporate bonds on a smaller scale.
Emerging markets a risk factor
Compared with the US and probably also with the euro zone, the economic outlook in the
emerging markets is more difficult to predict. With growing signs that the Fed will change course,
they face the end of a long period of cheap money which has boosted growth by means of
significant liquidity inflows from the developed world. An additional handicap is the end of the
commodity boom, from which most emerging markets have benefited.
We do not actually envisage a collapse in growth in this part of the world, as to some extent
higher Fed rates will be balanced by the more expansionary monetary policies of the ECB and
Bank of Japan. Moreover, the Chinese state – the country with the most obvious imbalances –
has sufficient funds to absorb any economic fallout from a property market slump. This should
prevent a sharp growth slowdown, but it will lengthen the process of correcting previous
imbalances and dampen growth for many years – as was the case in Japan in the 1990s.1
Consequently, our growth forecast for China, at 6½% in each of the next two years, is below the
consensus. In other emerging markets, too, we expect a lengthy period of lower growth rates
compared with the past ten years. The most likely risk is that performance could prove even
weaker if the Fed's first rate hike puts emerging market currencies under considerable renewed
pressure, as was the case in summer 2013, and central banks were forced to respond with
substantially higher interest rates.
CHART 3: Expansion of ECB balance sheet by €1trn unlikely without bond purchases
Estimated volume of measures approved by ECB for next two years, in bn €, figures marked with * are
already known
1500
1250
1000
Compensation for
maturing assets (72)
Compensation for
repayment of
LTROs (300)*
Autonomous factors
(25)
Gap (740)
750
500
Targeted net increase
of ECB‘s balance
sheet (1000)
Purchases of
ABS (150) and
Covered bonds (80)
TLTROs in
2015/2016 (205)
2nd TLTRO (130)
250
1st TLTRO (net 42)*
0
ECB's gross target
Commerzbank expectations
Source: Commerzbank Research
1
21 November 2014
See also ‘Bubble therapy: China set to follow Japan’, Week in Focus, 7 November 2014.
3
Economic Research | Week in Focus
Germany: still a euro zone out-performer
Is the German economy merely experiencing a soft patch, or is it facing a long lean period and
possibly even recession? We are forecasting only a soft patch, and expect leading indicators to
start stabilising over the coming months. Over the course of next year, we expect somewhat
more rapid growth in Germany, with an average rate of 1.1% in 2015 as a whole (revised down
from 1.3%), which would be above the euro zone average of 0.8%.
One reason for not expecting a far worse performance is that Germany has not yet experienced
excesses in property prices or unit labour costs that would call for correction. Indeed, the
economy has only recently suffered from a slowing of demand growth in the emerging markets,
and from the considerable appreciation of the euro between mid-2012 and early 2014.
Meanwhile, the euro has depreciated again (see chart 2, p.2), which should boost growth by an
average of over half a percentage point in the next four quarters, as is already apparent from the
rise in our Early Bird indicator. In addition, oil is now considerably cheaper, which will cut
Germany's import bill by 0.7% of GDP. Moreover, ECB rates which are far too low for Germany
are stimulating those forms of expenditure which are sensitive to interest-rate levels.
Markets: torn between Fed and ECB
The markets will no doubt be torn next year between a tighter course from the Fed and a more
relaxed ECB approach.
Government bonds: Ten-year bond yields are likely to reach new lows in the first quarter of
next year due to the anticipated ECB government bond purchases. If only euro zone issues were
the determining factors, Bund yields could still be as low as ½% at the end of next year. The only
reason why we nevertheless expect slightly higher Bund yields by that time (1.0%, consensus:
1.3%) is the US bond markets: Investors have not even priced in half the US rate hikes we are
predicting. This makes short and medium-term maturities particularly vulnerable. Ten-year
Treasuries will not escape unscathed and the ECB will not be able to fully protect European
government bonds either.
EUR-USD: The different paths taken by the Fed and the ECB make predicting the euro-dollar
exchange rate less risky than in previous years. We envisage a rate of 1.15 at the end of 2015.
Most strategists are expecting the euro to depreciate, albeit on a lesser scale. One objection to
this depreciation scenario is that is already the consensus view. But whilst strategists broadly
agree, since investors are not pricing much by way of Fed tightening, market participants could
be in for a surprise.
Equities: There is little scope for US equity gains in a climate of rising interest rates, despite the
sound economy. We see the S&P 500 at only 2,100 by the end of 2015. European equities, and
in particular German equities, should fare better, however. They will no doubt benefit from the
ECB reinforcing its zero interest policy with government bond purchases which will enhance the
attractiveness of the DAX on a dividend yield basis, at 3% versus 1% or less on bonds..
Moreover, with its strong export bias, the DAX should also profit from a weakening euro. We
expect it to reach 10,800 by end-2015, a somewhat higher prediction than most strategists are
making.
Crude oil: If only the Fed moves away from zero interest rates, but not the ECB and the BoJ,
there should still be support for commodity prices. This is not true of crude oil, though, where a
paradigm change has occurred. For one thing, the US is expanding its oil production so rapidly
that it could by itself meet any increase in global demand. Moreover, in contrast with earlier
periods, OPEC producers are not responding with production cuts. Instead, they are lowering
prices in order to defend their market share. We thus expect an average Brent price of only $85
next year, a forecast well below consensus.
4
21 November 2014
Economic Research | Week in Focus
Eugen Weinberg
Tel. +49 69 136 43417
Momentous OPEC meeting:
Walking a fine line after paradigm shift
At next Thursday's regular meeting in Vienna, OPEC is unlikely to lower its production
target of 30m barrels per day. The prospect of scaling down actual output to this level is
probably all that will be raised. This means that on the one hand, OPEC can present a
united front while at the same time pursuing a new target: putting a halt to rapidly
increasing US oil production. As a result, the price of oil will likely initially come under
renewed pressure, but it should start to rise again in the longer term.
For a long time, there was great faith in the power of the cartel over oil prices: It did after all cut
production during the economic crisis of 2008/2009, thus enabling prices to stage a strong
recovery. The organisation's power has seldom been challenged subsequently, because prices
have remained stable. However, the recent stance adopted by Saudi Arabia has put OPEC's
long-term strategy to the test. The cartel’s most influential member has barely scaled down its
output despite the rise in Libyan production, and has even allowed Asian buyers an additional
discount. An unmistakable OPEC price war has gradually emerged.
We fully expect a change of strategy. The main OPEC player, Saudi Arabia, is no longer willing
to bear the full brunt of production cuts, but wants to ensure that other cartel members play their
part too. There is after all a serious threat of the oil surplus rising even more if sanctions against
Iran are eased and Libya's oil output continues to rise while demand remains weak. However,
Saudi Arabia, or rather OPEC, has an additional objective: that of reining in growth of relatively
costly shale oil exploitation in the US (see chart 4). This is the main reason for the decline in
demand for OPEC oil. Our expectation is founded on Saudi Arabia lowering the price of its
December deliveries to North America, while most other customers have had their discounts
reduced. Even though most current US oil production is still profitable at current prices, these
can be expected to discourage investment, and thus output growth, in the longer term. This is so
because the depletion rate, i.e. the drop in output following the commissioning of a new rig, is
greater in the case of shale oil than with conventional sources, which means that regular new
rigs are needed to keep production at a stable level. The massive drop in prices is likely to alarm
many investors.
Our assumption is that next Thursday OPEC will merely confirm its overall production limit of
30m barrels a day. Since actual production is higher than this, an announcement of this kind
would be tantamount to an output cut. Supplies would nevertheless still be above expected
demand (chart 5), and oil prices would probably continue to retreat. We envisage an average
Brent price in the first quarter of next year of $77. A more serious drop in prices is unlikely,
though. In the longer term, prices should start to pick up again in response to less favourable
output prospects in the US: Brent should be back at $85 per barrel by the end of 2015. Only if
there were serious supply disruptions would much higher prices be likely, on account of OPEC's
change of course.
CHART 4: Sharp rise in US supplies thanks to shale oil
CHART 5: OPEC production outpacing demand for OPEC oil
Million barrels per day
Million barrels per day
33
32
31
30
29
28
27
2007
Sources: EIA, Bloomberg, Commerzbank Research
21 November 2014
current IEA estimate for
call on OPEC in 2015
2008
2009
2010
2011
2012
2013
2014
Sources: IEA, Reuters, Commerzbank Research
5
Economic Research | Week in Focus
Product idea: Forward Extra on diesel
Eugen Weinberg
Tel. +49 69 136 43417
Hedge against rising prices long-term
With falling crude oil prices, diesel prices have also come down considerably. To be sure,
we do not expect a quick recovery in the oil price. But both oil and diesel prices should
rise again on a longer-term perspective as the OPEC countries will withdraw excess
supply from the market in the long-term. We expect the price of Brent oil to rise from USD
78 currently to USD 85 per barrel next year. Also, the upcoming tightening of quality
requirements for shipping fuels should be reflected in higher demand for diesel. But
above all, the expected further depreciation of the euro currently makes a long-term
hedge for diesel prices attractive.
Since the start of October alone, the European diesel price has declined by nearly 13% to a level
of €572 per tonne currently. The key factor in this decline was the massive fall in crude oil prices
as a consequence of the OPEC cartel’s change of strategy. The OPEC countries are currently
mainly focusing on defending their market shares and are even ready to accept lower oil prices
in order to achieve this aim. But there are good reasons to expect rising oil and diesel prices
over the long-term:
1.
OPEC countries need significantly higher oil prices in the long-term to finance their national
budgets and imports. They will therefore have to reduce excess supply on a medium- to
long-term perspective for prices to increase again (see p.5). We expect oil prices to rise to
USD 85 from mid-2015 onwards.
2.
Demand for oil and diesel should also increase again next year. In particular diesel demand
in Germany should get an additional uplift from stricter quality requirements for shipping
fuels. From Q1 of next year, ships on their way to so-called emission control areas (North
and Baltic Sea coasts and most coastal areas of North America) have to limit their sulphur
emissions to a maximum of 0.1% (formerly 1%). The International Energy Agency IEA
expects that this will raise demand for lower-sulphur marine diesel by 240 thousand barrels
per day. We expect diesel prices to rise by around 10% to USD 780 per tonne next year.
3.
At the same time, the euro should continue depreciating versus the dollar. Our FX team
forecasts a EUR-USD exchange rate of 1.15 at the end of 2015. Accordingly, the diesel
price in euros should rise more sharply (to EUR 680 per tonne by the end of next year).
For this reason we recommend a long-term hedge for diesel prices at a currently attractive level.
Forward Extra on diesel – Zero-cost hedge for raw material purchasers
Reference price: Diesel oil 10ppm FOB Barges ARA in EUR, Platts (AAJUS00, corr. to DIN EN
590), €/$ conversion at 4:30 p.m. Ldn. time
Maturity: 01 Sep. 2014 – 31 Dec. 2015
Reference quantity: 75 mT per month, 1,200 mT in total
Strike price: EUR 692.00 per ton
Participation limit: EUR 840.00 per ton
Comparable fixed price: Client pays EUR 680.00 mT
Prices will be averaged over all raw materials business days in the respective period, with
monthly payment based on the agreed reference quantity.
If the variable price for a period exceeds the strike price without reaching or exceeding the
participation limit, the client will receive a compensation payment in the amount of twice the
difference between the variable price and the strike price.
If the variable price exceeds the strike price and reaches or exceeds the participation limit, the
client will receive the single difference between the variable price and the strike price.
If the variable price is fixed below the strike price, the client will pay the single difference
between the strike price and the variable price.
In addition to diesel, Commerzbank AG also offers hedging instruments in the energy sector on
WTI and Brent as well as further middle distillates, coal, electricity and CO2.
6
21 November 2014
Economic Research | Week in Focus
Major publications from 14 – 20 November 2014
Economic Insight: Germany – how much help is the lower oil price?
The sharp dip in oil prices over recent weeks will help the German economy, as it has cut the
country's bill for crude imports by €18 bn p.a., or 0.7% of GDP. Initially at least, private households
and the corporate sector should benefit in equal measure from this relief, and after some delay
consumption in particular should respond accordingly. more
Economic Briefing: Debt monitor – Reforms bring momentum
The painful reforms in the programme countries are bearing fruit. Ireland, Portugal and Spain have
reported healthy economic growth, which will ease the process of consolidating public finances. In
the Netherlands too, the budget deficit should decline compared to 2013. Belgium, on the other
hand, has problems with consolidation and Italy and France will probably not reach their deficit
targets. more
EM Briefing: Mexico – Oil and public finances: One less thing to
worry about
The Mexican Ministry of Finance disclosed its 2015 oil hedge programme. This effectively protects
the portion of government revenues that are exposed to oil price fluctuations and which, according
to our calculations, represent around a third of all government revenues. The hedge programme
contemplates put option structures at an average strike price of $76.4 per barrel for Maya and
Brent oil types. The hedge structure is effective for 228 million barrels. more
FX Hotspot: USD-CAD set for a large move higher
Investors betting upon CAD’s traditionally high beta to US growth should think again. Downgrades
to oil price forecasts alongside idiosyncratic economic difficulties mean that BoC will lag the Fed in
its tightening cycle. CAD will suffer as a result and ultimately higher levels in USD-CAD are likely to
manifest. In our view, moves towards (and above) 1.20 are entirely achievable. more
Cross Asset Outlook: Outlook 2015 – The great mid-cycle
divergence
Weaker growth recently appears to be just a mid-cycle soft patch. The long low-growth global
growth cycle should survive well through 2015. Some 2014 themes, such as the low performance
differentiation of asset classes, less extreme correlations within and across asset classes and low
volatility – temporary spikes aside – are therefore likely to prevail. Rising regional divergences in
growth and central bank policy should be the major theme in 2015, rendering regional and currency
allocation more important. The hunt for yield, for example, should remain livelier in the euro zone
than in the US. A further appreciation of the US dollar and a declining growth advantage of
emerging over advanced economies should both weigh on EM assets and commodities. Into the
year end and in early 2015, we maintain our constructive view on equities and REITs but also see
no major downside risks for fixed income. Once ECB QE is out of the box, the ride could become
tougher for ALL asset classes from Q2 onwards, not least because we expect the Fed to surprise
the market with quick rate hikes from June. Once markets have adjusted to that and the Fed is on
autopilot in H2, equity markets should resume their upward trend. more
21 November 2014
7
Economic Research | Week in Focus
Preview – The week of 24 to 28 November 2014
Time
Region Indicator
Period
Forecast
Survey
Last
Monday, 24 November 2014
•
9:00
14:00
GER
BEL
Ifo business climate
Business confidence
Nov
Nov
sa
sa
102.5
-6.5
103.3
–
103.2
-6.8
Q3
Nov
Q3
Sep
Nov
qoq, sa
sa
SAAR, qoq
yoy
sa
0.1
9.6
3.3
4.5
96.0
0.1
–
3.3
4.5
95.7
0.1(p)
97
3.5
5.6
94.5
Nov
Q3
Oct
Oct
Oct
Oct
Oct
Nov 22
Nov
Nov
sa
qoq, sa
mom
mom
mom, sa
mom, sa
mom, sa
k, sa
sa
sa
84.0
0.7
-2.0
0.5
0.3
0.4
0.1
280
64.0
90.0
–
0.7
-0.5
0.4
0.4
0.3
0.1
–
63.0
90.0
85.0
0.7(p)
-1.1
-0.1
0.2
-0.2
0.1
291
66.2
89.4 (p)
Oct
Oct
SAAR, k
mom, sa
450
-0.5
470
0.5
467
0.3
Nov
Oct
Oct
Nov
Nov
Nov
Dec
Nov
mom, k, sa
yoy
yoy
sa
sa
sa
sa
mom, sa
yoy, sa
5.0
2.5
-1.1
100.2
-5.0
4.0
8.5
0.1
0.7
-5.0
2.7
–
101.0
-4.9
–
8.5
0.0
0.6
-22.0
2.5
-1.2
100.7
-5.1
4.4
8.5
-0.3
0.8
CPI
Unemployment rate
Industrial production
Oct
Oct
Sep
Consumer prices
Consumer prices ex food and energy
Unemployment rate
Retail sales
Nov
Nov
Oct
Oct
yoy
%
mom
yoy
yoy
yoy
%, sa
mom, sa
yoy
3.0
3.6
-0.5
-1.7
0.3
0.7
11.5
1.5
1.1
3.0
3.6
-0.5
-1.7
0.3
0.7
11.5
–
–
3.2
3.6
2.9
0.8
0.4
0.7
11.5
-2.8
2.3
Tuesday, 25 November 2014
7:00
7:45
13:30
14:00
15:00
GER
FRA
USA
GDP, real (details)
Business climate (INSEE)
nd
GDP, 2 estimate
Case-Shiller index
Consumer sentiment (Conference Board)
Wednesday, 26 November 2014
7:45
9:30
• 13:30
FRA
GBR
USA
14:45
14:55
15:00
Consumer confidence
GDP (r)
Durable goods orders
Durable goods orders excl. transport
Personal income
Personal spending
Core PCE deflator
Initial claims
Chicago PMI
Consumer confidence (University of Michigan),
final
New home sales
Pending home sales
Thursday, 27 November 2014
8:55
9:00
GER
EUR
10:00
•
12:00
13:00
GER
Unemployed
M3
Loans to the private sector
Economic Sentiment Indicator
Business confidence, manufacturing
Business confidence, services
GfK Consumer confidence
Consumer prices, first state results
Friday, 28 November 2014
23:30 JPN
23:50
• 10:00
#
EUR
GER
Source: Bloomberg. Commerzbank Economic Research; *Time GMT (subtract 5 hours for EST. add 1 hour for CET). # = Possible release; mom/qoq/yoy: change
to previous period in percent. AR = annual rate. sa = seasonal adjusted. wda = working days adjusted; • = data of highest importance for markets
8
21 November 2014
Economic Research | Week in Focus
Christoph Weil
Tel. +49 69 136 24041
Economic data preview:
Euro zone inflation rate to reach 0.0% soon?
In November, lower energy prices are likely to have pushed euro zone inflation slightly
lower, from 0.4% to 0.3%. Note, however, that only some of the fall in oil prices has so far
been passed on to consumers so that the inflation rate looks set to drop further towards
zero in coming months. Although inflation excluding volatile energy, food, alcohol and
tobacco prices should hold around ¾%, this might ultimately turn out to be an argument
for broad-based government bond buying by the ECB. In the USA, positive news from
orders and consumption should predominate.
Crude oil prices in euros have fallen by 16% since the beginning of October (chart 6). Against
this backdrop, the estimated 1½% fall in euro zone energy prices in November was relatively
moderate. Many oil importers apparently have not yet passed their cheaper import prices entirely
on to consumers. Moreover, gas and electricity prices only react with a lag to changes in the
price of crude oil. Considering that energy prices in November 2013 had also declined markedly,
the weaker oil price in November is unlikely to be yet reflected in a much lower inflation rate in
November. After all, the year-on-year rate of change in energy prices will likely only drop from 1.8% to -2.8% which, taken by itself, would trigger a 0.1 percentage point change in the rate of
inflation. Excluding highly volatile energy, food, alcohol and tobacco, however, the inflation rate
should hold at 0.7% (consensus: 0.7%) in November (chart 7). On balance, the inflation rate thus
looks set to have dropped from 0.4% to 0.3% in November (consensus: 0.3%).
However, energy prices are likely to continue their fall in coming months, even if crude oil prices
were to stop their slide. In December, a further 1½% fall in energy prices would be sufficient to
send the inflation rate to 0.0% as the rise in energy prices from December 2013 will drop out of
the year-on-year comparison. This would further increase the pressure on the ECB to decide
additional easing measures – something that is unlikely to be changed by the expected decline
in the Ifo business climate from 103.2 to 102.5 (consensus: 103.3) following the weaker German
PMI.
USA: Further good news
By contrast, US data are expected to come in more on the positive side. While order intake for
durable goods is likely to have declined by 2% month-on-month in October (consensus: -0.5%),
this is primarily due to lower orders at Boeing. Excluding this always highly volatile component
we envisage a slight increase of 0.5%. Moreover, household consumption is likely to have
continued its uptrend. We are looking for an increase in consumer spending of 0.4% (consensus:
0.3%) in October.
CHART 6: Oil price in free fall – whether in euros or dollars
CHART 7: Inflation rate could drop to 0.0% in December
Price of Brent crude per barrel
Consumer price index, y-o-y in %, core rate: HICP excl. energy, food,
alcohol and tobacco
120
2.0
110
1.5
100
90
1.0
80
0.5
70
60
Jan-14
Apr-14
Jul-14
USD
Source: Bloomberg, Commerzbank Research
21 November 2014
Oct-14
EUR
0.0
Jan 13
Jul 13
Jan 14
headline rate
Jul 14
core rate
Source: Eurostat, Commerzbank Research
9
Economic Research | Week in Focus
Central Bank Watch (1)
Fed
According to the Fed meeting minutes released Wednesday,
some policymakers last month favoured eliminating a pledge
to keep interest rates near zero "for a considerable time," but
others worried that such a move could prompt financial
markets to push up rates prematurely. Some officials were
concerned that the “considerable time” phrase could be
misinterpreted as suggesting that the committee's decisions
were not dependent on the incoming data, the minutes said.
In the end, the FOMC added some extra language to say
that rates could rise earlier or faster depending on the
economic data. "A number" of Fed officials also suggested
"that it could soon be helpful to clarify" the pace of interestrate increases once policymakers start raising rates. We
expect the Fed to start hiking rates around mid-2015.
CHART 8: Expected interest rate for 3-month funds (USD))
Federal Reserve officials showed some concern regarding
tumult in financial markets and weak economic conditions
abroad. However, in the end, policymakers argued that a
reference to foreign economic weakness “would suggest
greater pessimism about the economic outlook than they
thought appropriate." And a reference about markets "risked
the possibility of suggesting greater concern" by
policymakers "than was actually the case, perhaps leading to
the misimpression that monetary policy was likely to respond
to increases in volatility."
TABLE 1: Consensus forecasts Fed funds rate
Bernd Weidensteiner
+49 69 136 24527
2,0
1,5
1,0
0,5
0,0
current Mrz 15
Futures
Jun 15
20.11.14
Sep 15
Dez 15
13.11.14
Mrz 16
Commerzbank
Q4 14
Q2 15
Q4 15
Consensus
0.25
0.50
1.00
High
0.50
1.00
2.00
Low
0.25
0.25
0.25
Commerzbank
0.25
0.50
1.50
Source: Bloomberg, Commerzbank Research
ECB
ECB president Draghi confirmed that the ECB would act
again if “[current] measures are not enough” or if “inflation
expectations were to worsen”. He and ECB Council member
Noyer stressed that government bond purchases (QE) were
a possible option. At the same time Noyer warned that “care
must be taken … [in order] not to offend the public, including
in Germany”. With regard to the expected balance sheet
expansion, Noyer said that he expected higher demand for
the second TLTRO in December. With regard to possible
purchases of private assets, he said: … we can imagine to
intervene in corporate bonds. … but yields in this segment
are already very low. As for bank debt, it is a bit complicated
to intervene in the market beyond what we do because of the
multiple interactions between the Eurosystem and banks.”
CHART 9: Expected interest rate for 3-month funds (EUR
Somewhat surprisingly, ECB Executive Board member
Coeuré insisted that the recent decline in long-term inflation
expectations, evident in the ECB’s Survey of Professional
Forecasters, was not a worrying deterioration.
TABLE 2: Consensus forecasts ECB minimum bid rate
ECB’s Mersch and Knot warned that QE might prove
ineffective. Mersch argued that despite strong QE measures
in Japan, the economy recently fell back into recession. Knot
argued that QE might create financial bubbles without having
much effect on the real economy.
Dr Michael Schubert
+49 69 136 23700
10
1,0
0,8
0,6
0,4
0,2
0,0
current Mrz 15
Futures
Jun 15
20.11.14
Sep 15
13.11.14
Dez 15
Mrz 16
Commerzbank
Q1 15
Q2 15
Q4 15
Consensus
0.05
0.05
0.05
High
0.05
0.05
0.05
Low
0.05
0.05
0.05
Commerzbank
0.05
0.05
0.05
Source: Reuters, Bloomberg, Commerzbank Research
21 November 2014
Economic Research | Week in Focus
Central Bank Watch (2)
Bank of England (BoE)
The minutes of the November MPC meeting were notable for
the fact that two members of the Committee maintained their
view that rates should rise by 25 bps, despite the fact that the
BoE had substantially reduced its inflation projection for
2015. Their argument was that just as the MPC had “looked
through the first-round effect of external price pressures
when they had pushed inflation up, it was appropriate to look
through them at present when they were pushing inflation
down.” Whilst this is a valid argument, the corollary is that
just as the MPC did not then react by changing the policy
stance so there is no need for it to do so now. It was
interesting to note, however, that there was a wide spread of
opinion on the risks to the outlook amongst the seven
members who saw no need to change interest rates. Some
were more concerned about the weakness of growth and the
likely downward pressure on inflation that would result,
whereas others were more concerned that the margin of
spare capacity could be reversed more quickly than
anticipated which could result in a rapid pickup in inflation.
We are currently in the former camp, although recent data
releases suggest that activity and inflation rates are (so far)
holding up reasonably well.
CHART 10: Expected interest rate for 3-month funds (GBP)
2,0
1,5
1,0
0,5
0,0
current
Mrz 15 Jun 15
Futures
20.11.14
Sep 15
13.11.14
Dez 15
Mrz 16
Commerzbank
Peter Dixon
+44 20 7475 4806
RBA (Australia)
The minutes of the November meeting contained the familiar
messages. Even with mining investment on the decline, the
RBA said the economy was on a recovery track, helped
above all by low interest rates and immigration. In spite of its
recent fall, the RBA went on, the AUD was overvalued so
that it did not support the economy as usual in periods of
falling commodity prices. In 2015, too, the economy would
grow amid under-utilisation, which would limit domestic wage
and inflation pressure. The members therefore reiterated that
“the most prudent course is likely to be a period of stability in
interest rates.” “
In addition, governor Stevens held a speech on “economic
possibilities" on Tuesday. As mining investment will continue
to decline, he said, the economy needed further drivers in
addition to commodity exports; this could be helped by a
weaker AUD and stronger corporate investment outside
mining. So far, low interest rates were, above all, boosting
housing sector activities. While he sees no immediate risk of
a housing bubble, he announced measures that would allow
this source of growth to be maintained for a longer period of
time. Overall, we therefore expect the key rate to remain
stable at 2.5% and the RBA to maintain its neutral bias for
now. The next meeting will take place on 2 December.
CHART 11: Expected interest rate for 3-month funds (JPY)
4,0
3,5
3,0
2,5
2,0
current
Mrz 15
Jun 15
Sep 15
Dez 15
Mrz 16
Futures
20.11.14
13.11.14
Commerzbank
Source: Bloomberg, Commerzbank Research
Elisabeth Andreae
+49 69 136 24052
21 November 2014
11
Economic Research | Week in Focus
Rainer Guntermann
Tel. +49 69 136 87506
Bond market preview:
Bumpy ride into year-end
Volatility on European bond markets has increased again. Headwinds derive from the
uncertain US interest rate outlook, whereas poor economic data are driving speculation
of government bond purchases by the ECB, preventing a stronger rise in yields. While
ten-year yields look set to remain within their recent trading range, regulatory
requirements appear to trigger more selling pressure in short-dated government bonds.
The environment for peripheral government bonds has brightened again.
TABLE 3: Weekly outlook for yields and curves
Yield (10 years)
Curve (2 - 10 years)
Bunds
US Treasuries
sideways
moderately higher
moderately flatter
flatter
Source: Commerzbank Research
Outlook for the Bund
future, 24-28 November
Economy
↑
Inflation
→
Monetary policy
→
Trend
→
Supply
↓
Risk aversion
→
Ten-year Bunds continue to trade within their recent ranges. Yields have levelled off between
0.75% and 0.85% amid rising volatility. Diverging expectations with regard to Fed and ECB
monetary policy are adding to tensions, particularly in longer maturities. At the same time, banks
are probably keen to reduce their balance sheet ahead of year-end as this date will be relevant
to determine the bank levy. To this end, banks are primarily selling shorter-dated bonds in order
to reduce liabilities or funding. This was probably behind this week's sudden sell-off at the short
end of the Bund curve which also took its toll on the long end of (semi) core peripherals’ yield
curves.
Despite this mixed impetus, major peripherals still managed to keep up remarkably well
(chart 12). However, one should keep in mind that peripherals had lost considerable ground
against the core in recent weeks. In the five-year maturity bucket, in particular, yield spreads
increased markedly, particularly versus semi core countries. This trend appears to have run its
course and looks set to reverse again. The traditional trading pattern should thus resume and
credit premiums should fall further once speculation of ECB government bond buying increases.
We expect the yield spread for Spain and Italy to tighten again going into year-end.
The volatile sideways trend in Bunds is unlikely to change much near-term (chart 13). Any
further deterioration in business climate and/or declines in inflation should further fuel ECB bond
buying speculation in the weeks ahead and limit any increase in yields to the upside. If the ECB
brings itself to start a broad-based buying programme next year, yields should drop to new lows
and are unlikely to rise above 1%, despite increasing headwinds from the US interest rate
turnaround in the second half.
CHART 12: Peripherals have turned more attractive again
CHART 13: Bunds trading in a volatile sideways range
Yield of Belgian government bond OLO Sep-19, in percent (lhs) and
yield spread versus Spanish government bond SPGB Oct-19, in basis
points (rhs)
1.0
96
0.8
89
Ten-year Bund yield, in percent
81
0.7
74
0.5
66
0.4
0.2
Jun-14
59
51
Aug-14
SPGB Oct19 yld
Oct-14
spread vs OLO6 Sep19 (rhs)
Source: Bloomberg, Commerzbank Research
12
Source: Bloomberg, Commerzbank Research
21 November 2014
Economic Research | Week in Focus
Esther Reichelt
Tel. +49 69 136 41505
FX market preview:
Caught in the cold
EUR-CHF will probably be kept on tenterhooks in the week ahead by speculation about
the outcome of the gold initiative on 30 November. The announcement of new elections in
Japan continues to reverberate in the yen’s exchange rates. In the remainder of the G10
universe, in contrast, the focus is on classic economic data.
TABLE 4: Expected trading ranges for next week
Range
Trend
EUR-USD
1,2350-1,2700
EUR-JPY
145,00-150,50
USD-JPY
115,50-120,00
Ô
Ò
Ò
Range
Trend
EUR-GBP
0,7900-0,8100
GBP-USD
1,5500-1,5850
EUR-CHF
1,2000-1,2080
Î
Ô
Î
Source: Commerzbank Research
Until the result of the Swiss referendum on the gold initiative on 30 November is known, EURCHF will not move far away from the exchange rate floor at 1.20. Just as with the Scottish
referendum, the market had long ignored the upcoming vote. It then reacted all the more strongly
once the risk of an approval of the gold initiative was priced in (chart 14): EUR-CHF even tested
1.2010. Some relief has come from recent polls, which are pointing to a likely rejection of the
gold initiative that would otherwise restrict the Swiss National Bank’s ability to act, and thereby
jeopardise the exchange rate floor. The better risk-reward profile is available to investors who
bet on rising EUR-CHF exchange rates.
We were obviously right to have counted on an increase in USD-JPY for a long while. In late
October the expansion of the Bank of Japan’s asset purchase programme dealt the yen the first
blow. The market was moved even more strongly by Prime Minister Shinzo Abe’s decision to
postpone until April 2017 the VAT hike originally planned for October 2015. Japan has thus
taken a special path, opening the liquidity tap even further and promising further stimulus
programmes rather than consolidating the public budget (chart 15). All this argues for a weaker
yen. But since the short-term outlook for economic growth has simultaneously improved and the
governing party will probably coast to victory in the snap elections, we expect that the yen’s
depreciation will decelerate markedly from now on. Even disappointing inflation data next Friday
will not change this.
The mood in the remainder of the G10 universe is much more relaxed. In the US, the good
growth figures for Q3 should be confirmed. Meanwhile, there is the chance of a downward
revision in UK Q3 GDP. But since this has already been priced into the market, only a bigger
surprise could cause major movements in the pound. In the euro area, the market already
expects further monetary policy measures, and so a slightly lower inflation rate in November will
hardly move the market.
CHART 14: EUR-CHF has awoken
CHART 15: Will prices finally rise thanks to new stimuli?
Implied EUR-USD volatility, 1 month, ATM; annualised in percent
Japanese consumer price index, percentage change on year
6
4
5
3
2
4
1
3
0
2
-1
1
0
Jan-14
Source: Bloomberg
-2
Jan-12
Apr-14
Jul-14
Okt-14
Jul-12
CPI
Jan-13
Jul-13
ex VAT effect
Jan-14
Jul-14
underlying trend
Source: Ministry of Internal Affairs and Communications, Commerzbank
Research
21 November 2014
13
Economic Research | Week in Focus
Andreas Hürkamp
Tel. +49 69 136 45925
Equity Market Preview:
DAX makes a comeback thanks to weak euro, rising ifo and strong dividends
After a disappointing sideways trend in 2014, the DAX should deliver a positive surprise
next year and climb to 10,800, in our above consensus view. A recovering German
economy is suggested by a recovering ifo index, which should raise the DAX P/E ratio
from 12x to 13x in 2015. Furthermore, DAX companies’ profits are expected to rise by 6%
in 2015 thanks to the tailwind from a weak euro. During 2015, investors should buy DAX
stocks with rising dividends from the automotive, industrial and insurance sectors.
TABLE 5: DAX dramatically underperformed the S&P 500 in 2014
Earnings 2015e
Performance (%) since
Index
31/10
30/09
31/12
DAX 30
9,473
1.6
0.0
-0.8
MDAX
16,519
2.4
3.3
-0.3
Index points
current
Growth (%)
P/E 2015e
31/12
current
31/12
current
31/12
782.0
827.3
10.4
13.2
12.1
13.1
1057.7
1144.3
15.1
15.1
15.6
16.7
Euro Stoxx 50
3,123
0.3
-3.2
0.5
247.7
272.2
11.7
12.3
12.6
12.8
S&P 500
2,049
1.5
3.9
10.8
128.1
132.3
9.6
10.9
16.0
15.5
Source: Commerzbank Corporates & Markets, I/B/E/S
While the S&P 500 has risen by 14% this year, the DAX has suffered a loss of 1%. In our
opinion, various trends suggest that this picture will be reversed in 2015.
(1) The ifo index is set to rise, while the ISM index is set to fall. In 2014, the ifo index fell
month after month, which we believe is a major reason why the DAX’s P/E ratio fell from 13x to
12x. The rise in the Commerzbank Early Bird Indicator for the German economy is a signal that
the ifo index should recover during 2015. As a result the DAX P/E could climb back up from 12x
to 13x. In the US, on the other hand, the P/E on the S&P 500 should stagnate in the current
region of 16 - a 10-year high - since the ISM index is likely to trend slightly downwards in 2015.
(2) The ECB is accelerating, the Fed is braking. The start of ECB bond purchases should give
the DAX a boost, as the euro is likely to continue falling. The weaker euro should help DAX
companies’ profits rise by 6% in 2015. The US equity markets, on the other hand, will face
tailwinds from a stronger US dollar and the start of a Fed tightening phase.
(3) DAX dividend yield more attractive than that on the S&P 500. 19 DAX companies are
likely to increase their dividends, and the DAX total dividend sum is expected to rise by 12% to
€30.2bn. The payout ratio of DAX companies will thus rise from 37% to 39%, with punitive
interest rates on short-term deposits perhaps playing a key role in this trend. The DAX dividend
yield of 3.1% will therefore remain significantly higher than the yield on ten-year Bunds. In the
US, by contrast, the S&P 500 dividend yield of 2.0% will be well below the 3.1% yield on longdated bonds expected by the end of 2015.
The rising Ifo index, ECB bond purchases, the weak euro, the sharp rise in the DAX total
dividend sum and the attractive dividend yield are the key trends that lead us to expect the DAX
to make a comeback in 2015. The index is predicted to rise to 10,800 by the end of 2015.
Investors should invest in companies with rising dividends from the automotive, industrial and
insurance sectors. In the US, on the other hand, the falling ISM index, Fed interest rate hikes,
the strong US dollar and rising US bond yields will result in a below-average stock market year.
An unexpectedly pronounced weakening of China’s economy and a further escalation of the
Ukraine-Russia conflict are the biggest risk factors for our optimistic DAX scenario.
TABLE 6: Commerzbank equity forecasts for the 2015 stock market year
Com m erzbank forecasts for end of 2015
17/11/2014
DAX
9,306
Euro Stoxx 50
3,085
S&P 500
2,041
DAX earnings 12M DAX P/E target
840
12.9
Consensus
perf + div in %
10,000
16%
3,200
3,250
8%
2,100
2,200
5%
10,800
Source: Commerzbank Research, Reuters
14
21 November 2014
Economic Research | Week in Focus
Eugen Weinberg
Tel. +49 69 136 22295
Commodities market preview:
All eyes on OPEC
Although tightening signals for the oil market should come from the OPEC meeting next
week, we expect crude oil prices to remain low. In the case of gold, the market is keenly
awaiting the referendum on the gold initiative in Switzerland on 30 November. For base
metals, China’s detailed trading figures will be announced; we expect continued low
aluminium and nickel prices but a rising trend for copper prices. Johnson Matthey’s
preliminary 2014 annual report on platinum group metals should reveal the tight supply
and support platinum and palladium prices.
TABLE 7: Trends in important commodities
Per cent change
13 Nov
Tendency Commodity specific events
1 week
1 month
1 year short-term
Brent (USD a barrel)
78.2
1.5
-7.4
-26.8
Þ
OPEC meeting (27/11)
Copper (USD a ton)
6671
0.1
1.6
-4.7
Ö
China’s base metal trading (21/11)
Gold (USD a troy ounce)
1190
2.3
-4.6
-4.4
Ü
Hong Kong gold trade
1206
0.9
-4.7
-13.3
Ü
Platinum (USD a troy
ounce)
Johnson Matthey preliminary annual report
(24 11)
Source: Bloomberg, Commerzbank Research
The tension on the oil market is evident ahead of the OPEC meeting next Thursday. We
estimate that the OPEC countries will agree to keep the total production quota at 30 million
barrels a day. This effectively amounts to a production cut but would not resolve the problem of
oil market oversupply, particularly in Q1 2015. The crude oil price should therefore barely rise
(chart 16).
Gold demand from China fell short of expectations this year and in India the government plans to
further restrict gold imports. In this situation, a positive surprise from Hong Kong – i.e. higher
exports of gold into “mainland” China as in the month before (chart 17) – would lend impetus to
gold prices. The referendum on the gold initiative in Switzerland on 30 November, which if
passed would force the Swiss National Bank to keep a minimum of 20% of its assets in gold,
could have an impact on the gold price. That said, the latest surveys suggest that a clear
majority will vote against the initiative. The platinum group metals market awaits Johnson
Matthey’s preliminary annual report, published on 24 November. We are convinced that the
report will reveal the tight supply of platinum and palladium and support prices. In the long term,
we expect higher prices for platinum group metals.
The news from China will be decisive for base metals, especially the final October trade statistics
for aluminium, copper and nickel. In the past, the Chinese have proven to be opportunistic
buyers. We expect continued low prices for nickel and aluminium and a rising tendency for
copper prices.
CHART 16: Oil price continues to fall, OPEC remains
inactive
CHARTS 17: Hong Kong’s gold exports have risen again
recently
USD a barrel
Chinese net gold imports from Hong Kong in tonnes
130
160
120
140
110
120
100
100
80
90
60
80
40
70
60
2010
20
2011
2012
2013
Source: Bloomberg, Commerzbank Research
21 November 2014
2014
0
2008
2009
2010
2011
2012
2013
Source: Hong Kong Statistics Department, Commerzbank Research
15
Economic Research | Week in Focus
Commerzbank forecasts
TABLE 8: Growth and inflation
Real GDP (%)
Inflation rate (%)
2014
2015
2016
2014
2015
2016
USA
Canada
2.2
2.9
2.8
1.7
1.5
2.0
2.3
2.5
2.5
2.0
1.5
2.0
Japan
0.5
1.0
1.5
2.9
1.3
0.4
Euro area
0.8
0.8
1.0
0.5
0.6
1.2
1.5
1.1
1.5
1.0
1.6
2.2
- France
0.4
0.5
0.7
0.5
0.5
0.7
- Italy
-0.3
0.1
0.5
0.2
0.1
0.7
- Germany
- Spain
1.4
2.3
2.3
-0.1
0.0
0.5
- Portugal
1.0
1.5
2.0
-0.4
0.0
0.5
- Ireland
5.2
3.5
3.5
0.5
1.0
1.4
- Greece
1.0
2.0
2.5
-1.2
-0.8
0.0
United Kingdom
3.0
2.4
2.4
1.5
1.3
1.7
Switzerland
1.6
1.4
1.5
0.0
-0.2
0.5
China
7.3
6.5
6.5
2.3
2.5
2.5
India
5.8
6.2
6.2
6.5
6.2
6.0
Brazil
0.3
0.9
2.3
6.5
6.3
5.8
Russia
0.6
-1.4
2.8
7.5
7.6
5.8
World
3.1
3.2
3.5
• The ultra-expansionary policy of the Fed is
boosting the US economy. At the same time,
fiscal policy is at least no longer a headwind.
We therefore expect US growth to markedly
accelerate.
• Growth in China is set to decelerate further,
due partly to falling house prices.
• The recovery in the euro zone will only
continue at a slow pace. GDP growth will
remain markedly slower than that of the USA.
• EMU has survived the sovereign debt crisis,
but is gradually evolving into an “Italian-style
monetary union”.
• Despite its current weakness, the German
economy looks set to continue outperforming
the rest of the euro area – partly because ECB
target rates are much too low for Germany.
• High unemployment in most countries is
keeping inflation low for the time being. In the
long term, however, inflation is likely to rise, as
central banks have given up some of their
independence.
TABLE 9: Interest rates (end-of-quarter)
20.11.2014
Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Federal funds rate
0.25
0.25
0.50
1.00
1.50
2.00
USA
3-months Libor
0.23
0.30
0.75
1.25
1.75
2.15
2 years*
0.50
0.90
1.30
1.80
2.25
2.65
5 years*
1.60
2.20
2.60
2.90
3.10
3.30
10 years*
2.31
2.50
2.75
2.90
3.05
3.20
Spread 10-2 years
181
160
145
110
80
55
Swap-Spread 10 years
21
10
10
15
15
15
Minimum bid rate
0.05
0.05
0.05
0.05
0.05
0.05
3-months Euribor
0.08
0.10
0.10
0.10
0.10
0.10
2 years*
-0.02
-0.10
-0.10
-0.05
-0.05
-0.05
5 years*
0.14
0.10
0.15
0.15
0.20
0.20
10 years*
0.79
0.70
0.80
0.90
1.00
1.10
Spread 10-2 years
81
80
90
95
105
115
Swap-Spread 10 years
21
25
30
35
35
35
Euro area
United Kingdom
Bank Rate
0.50
0.50
0.50
0.50
0.75
0.75
3-months Libor
0.56
0.60
0.60
0.80
0.85
1.00
2 years*
0.56
0.65
0.80
1.00
1.20
1.35
10 years*
2.08
2.30
2.50
2.70
2.70
2.80
• The Fed has ended its QE3 programme.
Interest rate hikes are on the cards from
2015Q2, due to a continuously decreasing US
unemployment rate and gradually rising
inflation.
• Since the Eurosystem balance sheet will
probably not expand as much as expected by
the central bank, and as inflation expectations
are likely to fall further, we expect the ECB to
announce broad-based government bond
purchases during the first half of 2015.
• 10y Bund yields are likely to stabilise around
1% later this year when the Fed
communication changes but mark new record
lows when the ECB announces QE in 2015.
Thereafter, yields should rise gradually. The
structurally low interest rate environment
remains intact.
• The focus on the Fed’s lift-off will put upward
pressure on US$ rates. A return to 3% for 10y
USTs is only on the cards for end-2015,
though. The curve is in for a textbook-style
flattening via the short-end in the coming
quarters.
• Risk premiums of peripheral government
bonds are set to decline further.
TABLE 10: Exchange rates (end-of-quarter)
20.11.2014
Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
EUR/USD
1.26
1.22
1.19
1.17
1.15
1.13
USD/JPY
118
117
120
122
125
127
EUR/CHF
1.20
1.21
1.21
1.21
1.21
1.21
EUR/GBP
0.80
0.78
0.77
0.76
0.75
0.75
EUR/SEK
9.28
9.00
8.95
8.90
8.90
8.85
EUR/NOK
8.48
8.60
8.55
8.50
8.40
8.30
4.05
EUR/PLN
4.21
4.24
4.15
4.12
4.10
EUR/HUF
304
310
315
317
317
318
EUR/CZK
27.68
27.50
27.40
27.40
27.20
27.00
AUD/USD
0.86
0.85
0.83
0.81
0.80
0.80
NZD/USD
0.79
0.75
0.73
0.71
0.70
0.69
USD/CAD
USD/CNY
1.13
1.15
1.16
1.17
1.18
1.19
6.13
6.05
6.00
5.95
5.95
5.93
• USD should further profit from the
expectations
of
Fed
interest
rate
normalization. Current USD rates have not
priced in the speed of rate hikes that we
expect.
• The discussion about an ECB QE programme
will not put much pressure on the euro for the
time being because the overall volume of ECB
liquidity measures is already known.
• CEE currencies are generally benefiting from
the dovish ECB backdrop, meaning central
banks have room to cut rates further. HUF
should depreciate, while EUR/CZK will float
above the 27.0 floor set by the CNB.
Source: Bloomberg. Commerzbank Economic Research; bold change on last week; * Treasuries, Bunds, Gilts, JGBs
16
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Economic Research | Week in Focus
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