Economic Research Week in Focus 30 January 2015 Cheap oil, soft euro: The effects on our world view How will the decline in the oil price and the EUR-USD exchange rate impact economic activity, inflation and monetary policy in the US and the euro area? Ironically, lower oil prices can be expected to spur consumption which has prompted an upward revision to our 2015 euro area growth forecast. However, we can well imagine, in light of oil-price-induced negative inflation, that the ECB will still increase the volume of its monthly bond purchases later this year. Also against the backdrop of lower inflation, we now see the first rate hike by the Fed in September rather than June. Nevertheless, we have lowered our EUR-USD forecast considerably. Page 2 The euro and the oil price continue falling EUR-USD and crude oil price (Brent blend, per barrel) in USD, daily data 1.40 120 110 1.35 100 1.30 90 1.25 80 70 1.20 60 1.15 1.10 Jul-14 50 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Euro (lhs) Jan-15 40 Feb-15 Crude oil (rhs) Source: Bloomberg, Commerzbank Research India: Modi’s incremental approach. Reforms to date may appear to be modest but overhauling decades of inefficient policies in a matter of months was always going to be too much to ask. We see Modi’s reforms moving in the right direction, in an incremental and pragmatic manner. Page 5 Product Idea: Forward Plus in EUR-SEK. The appreciation of the Swedish krona has put the Riksbank in an awkward situation since it would prefer a weaker currency. Given the risk that it will take unconventional measures to weaken the krona we offer a means of hedging against such an outcome. Page 6 Outlook for the week of 1 to 6 February 2015 Economic data: The January US employment report is likely to show decent job growth although the focus is more likely to be on wages following the weak December outcome. Page 9 Bond market: European bond markets will probably continue to be mainly driven by political events. We continue to assume that the yield lows in long-dated Bunds are still ahead of us and have revised down our yield forecasts for the euro area and US Treasuries. Page 12 FX market: While the Fed is still on a normalisation course, most other G10 central banks are generally pursuing monetary easing which has prompted FX forecast changes. Page 13 Equity market: With many of the factors supporting our bullish DAX outlook already having come to fruition, global risk factors suggest that the German market is likely to move sideways for the foreseeable future. Page 14 Commodity market: With US oil inventories expected to mark a new record high next week, oversupply is likely to continue weighing on the oil price. Page 15 Chief economist: Dr Jörg Krämer For important disclosure information please see page 18. Editor: Peter Dixon research.commerzbank.com / Bloomberg: CBKR / Research APP available +49 69 136 23650 [email protected] +44 20 7475 4806 [email protected] Economic Research | Week in Focus Cheap oil, soft euro: The effects on our world view Dr Jörg Krämer Tel. +49 69 136 23650 The oil price and the EUR-USD exchange rate have collapsed. This has provoked an intensive discussion of what this means for our forecasts of economic activity, inflation and central banks in the US and the euro area. For the first time in a long while, we have revised our growth forecast for the euro area slightly upwards. However, we can well imagine, in light of oil-price-induced negative inflation, that the ECB will increase the volume of monthly bond purchases later this year. Also against the backdrop of lower inflation, we now see the first rate hike by the Fed in September rather than June. Nevertheless, we have lowered our EUR-USD forecast considerably. Semblance of recovery in the euro area Our growth forecasts for the euro area have always been low. And we have often emphasised that private households and businesses in many euro area countries are still too highly indebted and will not easily be lured into higher spending by the ECB’s low interest rates. But at our monthly forecast meeting, we raised our 2015 euro area growth forecast from 0.8% to 1.1% (see Box for our forecast for Germany). One reason for this is that the oil price decline has lowered the euro area’s import bill by an amount equivalent to around 1¼% of GDP. Nearly half of this has trickled down to consumers, raising their disposable income by around 1%. At least some of this will go into consumption. What is more, the external value of the euro has fallen by a good 7% since mid-2014. This should some slight growth stimulus over the next few quarters, although the lack of a reform breakthrough in Italy and France will depress long-term growth prospects for the euro area. Core inflation to remain below 1% despite depreciation The fact that cheaper oil directly reduces inflation via lower energy costs is self-evident. For this reason we had already lowered our 2015 inflation forecast for the euro area to -0.1% in early January. What is more interesting is how the inflation rate excluding energy and food prices will evolve – the so-called core inflation, which the ECB monitors closely (chart 1) – because here the fall in oil prices and the euro depreciation work in opposite directions. • Oil is not only an energy source but also an important upstream input product, whose price impacts on the prices of non-energy products. According to the ECB’s calculations 1, a fall in the oil price (on a euro basis) of 10% lowers the consumer price index (ex. energy) by a total of 0.2% after three years. This means a fall of 40% in oil prices since mid-2014 will reduce non-energy consumer prices by a total of 0.8% which should lower core inflation by about 0.3 percentage points in 2015. • Depreciation of the euro’s trade-weighted external value by 10% raises the inflation rate by around 0.4 percentage points over a period of one year according to ECB estimates 2. Since mid-2014, the external value has fallen by a good 7%, which will likely increase core inflation by around 0.3 percentage points this year. The effects of the lower oil price and the euro depreciation thus balance each other out with regards to core inflation. With labour costs continuing to rise only moderately, core inflation this year and probably also next should remain at just under 1% – well below the ECB’s 2% target. We had not expected this result before we analysed the ECB’s studies on the determinants of core inflation. In case of doubt, the ECB will up the ante We were one of the first institutions to incorporate government bond purchases by the ECB into our baseline scenario as long ago as August 2014. But today, we can well imagine that the ECB, which is under strong political pressure, will up the ante this year. At our forecast meeting, we intensively discussed how this process might look. The ECB could continue buying bonds after September 2016. But ECB President Draghi already indicated at last Thursday’s press conference that such a step was possible in the event that inflation does not rise sufficiently 1 EC Monthly Bulletin December 2014, Box 3: Indirect effects of oil price developments on euro area inflation. ECB Monthly Bulletin September 2014, ECB staff macroeconomic projections for the euro area, Box 3: Sensitivity analyses. 2 2 30 January 2015 Economic Research | Week in Focus close to the 2% target. The ECB would send a much clearer signal if it raised the monthly purchase volume from €60bn to, say, €90bn. Of course, it could not justify such a move with the aim of helping the finance ministers of highly indebted countries. But it could be dressed up with other economic reasons if required. The inflation rate should remain negative until autumn, and core inflation will continue to hover at levels just below 1% for a long time to come. Indeed, it is quite possible that market-based long-term inflation expectations, after trending downwards since mid-2014 despite the growing probability of ECB bond purchases, will still remain well below the 2% mark in the second half of the year (chart 2). All in all, we see a 40% probability that the ECB will raise the monthly purchase volume considerably in the second half of the year, even though this would further ease reform pressure on the peripheral countries and impede the resolution of the root causes of the sovereign debt crisis. How will the Fed react to lower inflation? Unlike the euro area, the US will soon operate at full employment. And prospects for the US labour market remain good – not least because the lower oil price gives the US economy an additional lift. We have raised our US growth forecast for this year from 2.9% to 3.2%. But the oil-price-induced decline in inflation, with negative inflation rates in the spring, coupled with slow wage growth, suggest that the Fed will postpone its first rate hike. We now expect to see it in September rather than June. In case of doubt, the Fed will start rather later instead of pausing after the first rate hike, which would confuse investors. But in contrast to many market participants, we adhere to our forecast that the Fed will raise its key rate by 25 basis points at each meeting (chart 3). On the basis of latest unemployment rate data, at 5.6%, we will soon see full employment in the US. Wage growth should then accelerate again. It has so far been modest because an unusually large number of businesses have not granted their employees wage increases (chart 4). Instead, they opted to reduce real wages through multi-year pay freezes, rather than restoring balance to the labour market by cutting nominal wages in one stroke during the recession. 3 EUR-USD weakness to continue As a result of a more upbeat US economic outlook, the Fed will raise its key rates. The ECB, in contrast, is acting as a sweeper countering the lack of reform in the euro zone and will probably step up its QE programme in case of doubt. The central bank money the ECB thereby places in circulation will seek investment opportunities not only within the euro area but also in the US, which will support the dollar. The ECB’s unexpectedly large bond purchase programme is a depreciation programme for EUR-USD. We have lowered our year-end forecast for EUR-USD from 1.12 to 1.04. CHART 1: Euro zone - Core inflation has stabilised at ¾% CHART 2: Euro zone - Long-term inflation expectations Harmonised index of consumer prices excluding energy, food, alcohol have collapsed despite bond purchases and tobacco, percentage change on year Five-year inflation expectation in percent, five years forward, from inflation swaps, in percent 1.8 2.8 1.6 2.6 1.4 2.4 1.2 1.0 2.2 0.8 2.0 0.6 1.8 0.4 1.6 0.2 0.0 2010 2011 2012 2013 Source: Eurostat, Commerzbank Research 3 30 January 2015 2014 1.4 2010 2011 2012 2013 2014 2015 Source: Bloomberg, Commerzbank Research See “Fed meeting: waiting for wage inflation,” Week in Focus, 23 January 2015 3 Economic Research | Week in Focus Even lower Bund yields Against the backdrop of fundamental data in the euro area, ten-year German Bund yields ought to continue trading well below 0.5% for some time to come. The only argument for slightly rising yields in the second half of the year is the upcoming rate hikes in the US. To be sure, US yields now have much less of an influence on the euro area’s market than in the past because the economy in the euro area is unusually weak compared to the US and the ECB is now supporting the highly indebted peripheral countries. But the ECB will probably not be able to completely eliminate the influence of the US bond market. We have lowered our year-end forecast for the ten-year Bund yield from 1.0% to 0.6%. Box: Why we have raised our forecast for Germany When the German economy stagnated in summer and fears of recession surfaced in autumn, we only spoke of a dip in growth which the economy would soon overcome.1 In fact, German GDP in Q4 expanded by ¼% versus Q3. The fall of the oil price and the euro depreciation have recently improved the economic environment considerably, and this is reflected in a marked rise in the Ifo business climate and other sentiment indicators. This applies especially to Germany, because private households and businesses in Germany – unlike in many other euro countries – are not too highly indebted and property prices are not falling. We have raised our 2015 growth forecast for Germany from 1.1% to 1.5%. CHART 4: US - share of workers with “frozen” wages CHART 3: US - market is pushing back rate hike expectations. Implied probabilities for the federal funds target rate for December 2015. Horizontal axis: FF target rate, vertical axis: probability in %. Proportion of workers receiving no wage increase in same job over last 12 months in %. Grey areas: recessions as defined by NBER. 18 35 30 16 25 20 14 15 12 10 5 10 0 0 0.25 28.01. 0.5 0.75 1 1.25 1.5 28.12. Source: San Francisco Fed, NBERCME, Commerzbank Research 4 1.75 8 1990 1994 1998 2002 2006 2010 2014 Source: Global Insight, San Francisco Fed, NBER, Commerzbank Research 30 January 2015 Economic Research | Week in Focus India: Modi’s incremental approach Charlie Lay Tel. +65 6311 0111 Modi’s reforms to date may appear to be modest, but overhauling decades of inefficient policies in a matter of months was always going to be too much to ask. We see Modi’s reforms moving in the right direction, in an incremental and pragmatic manner. A continued economic recovery will aid reform efforts. We see growth rates of 5.8% in FY2014-15 and 6.2% in FY2015-16; RBI to cut by another 100bp this year, and USD-INR at 62 by year-end. PM Modi’s critics note the slow pace of reforms and absence of major announcements since assuming office in May 2014. Already in the autumn, we viewed efforts to modernize the bureaucracy, e.g. increased accountability for the civil sector and a reduction in red tape, as part and parcel of the arduous task to remake India 4. However, it is unreasonable to expect a major overhaul of business practices in just eight months after decades of regulation and protectionism. Modi is adopting a pragmatic, gradual, and calibrated approach to reforms. Modi’s success will ultimately be measured by whether the foundations for a free-market based economy are laid, as opposed to a big bang approach to reforms which may not be feasible. After all, Modi will encounter greater resistance from entrenched and powerful lobby groups. These groups are likely to be within, and not just outside, his NDA (National Democratic Alliance). This will not only entail pushing for deregulation across various sectors but also increased investment in essential infrastructure such as ports and roads and reliable electricity supply. To his credit, Modi has implemented changes in areas where he can change e.g. he has set in motion reviews of labour laws that discourage rather than encourage foreign investment; reduced subsidies for fuel, food, and fertilizers; abolished regulation in diesel prices which benefited mainly the rich; and lifted FDI limits in insurance and defence to 49% from 26% in July. India’s problems and economic malaise are deep rooted and cannot be fixed overnight. The incremental approach may not catapult growth back to the average 9% pace of 2003-2007 anytime soon. We acknowledge that bolder reforms will be needed to propel both the markets and economy forward. However, the bolder and more potent the reforms, the more challenging they will be. We see two factors that could restrict the pace going forward. These are: 1) Lacking Upper House majority. NDA has a strong majority in the Lower House (336 out of 543 seats) but is in a minority in the 245-seat Upper House (currently 60 out of 245). This makes it difficult to push through important bills, with little prospect of this changing in the foreseeable future. 2) Economic backdrop. A stronger economy would make reforms more palatable. However, the impetus may have to come from the domestic sector, rather than the external sector as in the early 2000s, given the benign global recovery. We expect the economy to pick up to 6.2% for FY2015-16 from 5.8% in the current FY2014-15, which would still fall short of past growth rates. We see RBI cutting by another 100bp this year, to 6.75%, due to 1) the collapse in inflation on lower food and energy prices; and 2) government efforts to contain the fiscal deficit. The deficit is however expected to breach the 4.1% of GDP target for FY2014-15. For FX, we expect RBI to favour stability rather than a particular level. We see USD-INR relatively unchanged at 62.00 by end-2015. 4 30 January 2015 See “India: Reforms or modernization of bureaucracy?“, Week in Focus, November 7, 2014. 5 Economic Research | Week in Focus Thu Lan Nguyen Tel. +49 69 136 82878 Product idea: Forward Plus in EUR-SEK Hedge against short-term SEK weakness, profit from appreciation The ECB has weakened the euro considerably by expanding its asset purchase programme. The Swedish krona has also climbed against the euro in past weeks. This puts the Riksbank in an awkward situation; it would like a weaker krona in relation to the euro given the low inflation rate in Sweden. We see a risk that it will take unconventional measures to lower the krona at its next meeting. Like many central banks, Sweden’s Riksbank is in a dilemma. Sweden’s real economy is running smoothly. The weaker krona, the lower oil price and loose monetary policy are benefiting the economy. On the other hand, the inflation rate is persistently low. At just below zero since early 2014, it is a growing headache for the Riksbank. The central bank would consequently like to see a weaker krona, especially versus the euro, as the euro zone is Sweden’s largest trading partner. However, the ECB has just significantly weakened the EUR with its decision to make broad-based government bond purchases and Riksbank is now under pressure to become more expansionary as well to prevent excessive appreciation of the krona. At its last meeting in December, it had already signalled that it is willing to further loosen monetary policy if need be. However, as it has already dropped the key interest rate to zero, it now only has unconventional measures left. The hurdle to such measures is a large one; high and still rising private debt coupled with the boom on the real estate market in Sweden is causing the central bank a lot of concern. Further substantial monetary easing could fuel imbalances and market bubbles. We therefore expect the Riksbank to remain cautious for now and decide in favour of less strong measures. In December, it held out the prospect of extending its promise to leave the key interest rate unchanged (currently until mid 2016). But this would only dampen the appreciation trend if anything, and not reverse it. We therefore see a risk that the Riksbank will decide on greater measures at its next meeting on 12 February to weaken the krona given the latest downward trend in EUR-SEK . An interest rate cut to negative territory is conceivable or possibly even its own government bond buying programme. Both would weigh on the krona, although asset purchases would probably have the biggest effect on the exchange rate. We advise SEK sellers to hedge against this short-term risk with a Forward Plus, which would also allow a certain level of participation in SEK appreciation. Product idea: Forward Plus Exporter in EUR-SEK Spot rate (sample calculation) 9.3200 Hedging rate 9.3800 Lower limit (‘trigger’) 8.9500 Hedging nominal EUR 500 000 Duration 6 months Cost Zero cost The Forward Plus allows you to log in a fixed hedging rate. At the same time, you will have the chance to benefit to a certain extent from an exchange rate trend that is positive for your underlying position. On the maturity date, a currency exchange will always be carried out. If, during the tenor of the trade (‘American-style trigger’), the EUR-SEK spot rate touches or falls below the trigger (8.95) or if the EUR-SEK spot rate trades above the hedging rate (9.38) at maturity, the currency exchange will only be carried out at the agreed hedging rate (9.38). If the spot rate has not touched the trigger (8.95) during the tenor of the trade (‘American style') and the EUR-SEK spot rate trades below the hedging rate (9.38) at maturity, the net hedging result will be equivalent to the (better) EUR-SEK spot fixing. 6 30 January 2015 Economic Research | Week in Focus Major publications from 23 – 29 January 2015 Rates Radar: Digging into the €QE details We scrutinize the impact of the ECB’s asset purchase programme on various market segments. Scarcity effects will be a key driver over the coming months and look set to push EBG yields lower and ASW-spreads wider. We set a new target of +40bp for our 10y swap spread widener and +85bp for our 10-30y BTP flattener as investors will have to extend further along the curve. We also like shifting 10y core swap spread wideners into the 30y. more Economic Insight: Spain – The next swing to the left? Like Greece, Spain could see a left-wing government come into power at the end of the year. The economic recovery is unlikely to improve the labour market situation enough to secure a second term of office for the current government. But even a government involving the new Podemos party is unlikely to make so radical a policy change as to choke the upturn, let alone trigger a new sovereign debt crisis. Nevertheless, political uncertainty should weigh on Spanish bonds. more Economic Insight: Real Estate Monitor Germany In Germany, prices for residential properties continue rising inexorably – in 2014, they increased by nearly 3%. Due to low mortgage interest rates and the lack of alternative investments, many invest in “concrete gold”, and the ECB’s renewed monetary easing will continue to fuel this trend. Despite this, we do not yet see the German property market in a critical boom phase, although there are signs of overheating in individual big cities such as Berlin. more EM Briefing: Singapore – MAS joins the shock and ease bandwagon Singapore’s central bank (MAS) surprised the market with monetary easing. Without prior notice, it reduced the slope of the SGD NEER, and USD-SGD jumped by more than 1% to above 1.35. Given the downgrade in core inflation this year to 0.5-1.5% vs. 2-3% previously, we could see a further easing this year. The bottom line is an upside bias for USD-SGD which could exceed our current year-end target of 1.40. more EM Briefing: LatAm – A case for lower rates Growth prospects in EM remain under pressure amid continuously falling commodity prices. Under this optic, we see a reasonable probability of seeing lower rates in the next months in Chile and Colombia and to a lesser extent in Brazil. Mexico stands apart from this group given its leverage to the US economy and we see very limited probability of lower rates here. This asymmetrical regional performance should also manifest itself in FX terms: we continue to favour MXN at the expense of COP and CLP. more EM Briefing: Russia – S&P cuts Russia to BB+ Although in line with general market expectations, this will push USD/RUB higher in the immediate term, especially given all the negative noise out of Ukraine, which must have pushed S&P ultimately to do the move -- indeed, had there been peace in eastern Ukraine by now, we would have likely seen S&P hold back on a ratings cut. more 30 January 2015 7 Economic Research | Week in Focus Preview – The week of 1 to 6 February 2015 Time Region Indicator Period Forecast Survey Last Sunday, 1 February 2015 01:00 CHN PMI, manufacturing, preliminary Jan sa 50.1 50.2 50.1 Jan Jan Jan Jan Aug Aug Aug Jan sa sa sa sa mom, sa mom, sa mom, sa sa 54.0 49.0 51.0 53.0 0.3 -0.4 0.0 55.0 – – 51.0 52.8 0.2 -0.2 0.0 55.0 53.8 48.4 51.0 (p) 52.5 0.4 0.6 0.0 55.5 Feb Dec Jan % mom, sa SAAR, mn 2.50 -3.2 16.7 2.50 -2.0 16.9 2.50 -0.7 16.8 Jan Jan Jan Jan sa sa mom, k, sa sa 52.3 57.0 230 55.5 52.3 55.8 220 56.5 52.3 (p) 55.8 241 56.2 mom, sa yoy % sa % bn, sa 2.0 1.3 0.50 285 -38.0 0.8 0.1 0.50 – -38.0 -2.4 -0.4 0.50 265 -39.0 0.5 0.0 225 5.5 0.3 -0.6 231 5.6 -0.1 -0.5 252 5.6 Monday, 2 February 2015 08:15 08:45 09:00 09:30 13:30 SPA ITA EUR GBR USA • 15:00 PMI, manufacturing PMI, manufacturing PMI, manufacturing PMI, manufacturing Personal income Personal spending Core PCE deflator ISM-Index, manufacturing Tuesday, 3 February 2015 03:30 15:00 # AUD USA RBA interest rate decision Industrial orders Auto sales Wednesday, 4 February 2015 09:00 09:30 13:15 15:00 EUR GBR USA PMI, services, final PMI, services ADP employment change ISM-Index (non-manufacturing) Thursday, 5 February 2015 7:00 GER Industrial orders Dec 12:00 13:30 GBR USA BoE interest rate decision Initial claims Trade balance Jan 31 Dec Friday, 6 February 2015 • 7:00 GER Industrial production Dec • 13:30 USA Non-farm payrolls Unemployment rate Jan Jan mom, sa yoy mom, k, sa % 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; (p) = preliminary; • = data of highest importance for markets 8 30 January 2015 Economic Research | Week in Focus Dr Christoph Balz Tel. +49 69 136 24889 Economic data preview: USA: Job engine running smoothly but what about wages? A solid US labour market report has almost come to be taken for granted, with next week’s forthcoming January data unlikely to be an exception. However, this time the focus looks set to be more on wages where the December decline is likely to have proved to be a one-off. In Germany, the uptrend in manufacturing is expected to have continued in December. US payroll growth looks set to come in above 200k for the twelfth consecutive month, albeit with the increase likely to be smaller than in the previous month. In December, the extraordinarily mild weather had supported employment and triggered a 252k gain. Back then, the particularly weather-sensitive construction sector, for instance, reported payroll growth of 50k, which is 30k above the previous three month average. Therefore, job growth in January is likely to have deteriorated slightly, to 225k (consensus 231k) which would still imply a respectable performance. The rate of unemployment appears to have continued its downtrend (for some time now it has been falling by around 0.1pp per month), probably standing at 5.5% (consensus 5.6%). The rate would thus be in line with its long-term average so that, on the definition of the FOMC members, full employment would have been reached. Nevertheless, the Fed hesitates to implement the turnaround in monetary policy as inflation remains stuck below its target. The focus of the labour market report will therefore be on wage data. As long as wages fail to increase, inflation is unlikely to expand on a sustainable basis either. In December, average hourly wages even came in 0.2% lower than in November, while the year-on-year rate dropped to 1.7%. Although we cannot identify any particular reason, we believe this is a statistical artefact and consequently expect to see a countermove in January featuring an above-average increase in wages. However, this would not change the very moderate rate of wage growth which is oscillating around 2% year-on-year (chart 5). The doves on the FOMC will thus continue to point out that there are virtually no indications of an imminent increase in inflation. At our forecast meeting we have therefore moved the first interest rate hike from June to September (see pages 2 - 4). Germany: Industry remains in an uptrend While the purchasing managers’ index (PMI) has yet to turn around, we note first indications from hard data that the soft spot in German manufacturing was left behind around mid-2014. Our trend for manufacturing output calculated on the basis of order intake in recent months is pointing significantly upward again (chart 6). We expect this positive trend to continue. Order intake in December is likely to have improved by 2% (consensus: 0.8%); we are looking for industrial production to have expanded by 0.5% (consensus: 0.3%). CHART 5: USA – Wage growth oscillating around 2% CHART 6: Germany – Manufacturing trending upward Average hourly wages, year-on-year change in % Manufacturing output, index 2010=100 and trend calculated based on order intake in recent months 112 4.0 3.5 110 3.0 108 2.5 2.0 106 1.5 1.0 2009 104 2012 2010 2011 2012 Source: Global Insight, Commerzbank Research 30 January 2015 2013 2014 2013 Production 2014 Trend Source: Global Insight, Commerzbank Research 9 Economic Research | Week in Focus Central Bank Watch (1) Fed Following the FOMC meeting this week, the Fed pledged to remain “patient” in normalising monetary policy. This rules out a rate hike before mid-year – which nobody had expected anyway. The central bankers were more optimistic in their assessment of the US economy. They have observed “solid” growth (previously it was described as “moderate”) and “strong” job gains (previously “solid”). With regard to inflation, the Fed admitted that it had fallen even further below the 2% target. However, it implied that it did not attach all that much weight to the decline in market-based inflation expectations and expected inflation would rise again in the medium term. The Fed also underlined that the decline in energy prices is positive for household purchasing power. The Fed only very briefly touched on the international risks that are the subject of intense debate on the market at present. “International developments“ would be taken into account together with a wide range of information in determining how long to maintain zero interest rates. The Fed is thus trying to keep open the option of a rate hike in June. We believe a first rate hike in September is somewhat more likely and we have adjusted our forecast accordingly. Bernd Weidensteiner +49 69 136 24527 CHART 7: Expected interest rate for 3-month funds (USD) 2,5 2,0 1,5 1,0 0,5 0,0 current Mrz 15 Jun 15 Sep 15 Dez 15 Mrz 16 Futures 29.01.15 22.01.15 Commerzbank TABLE 1: Consensus forecasts Fed funds rate Q1 15 Q2 15 Q4 15 Consensus 0.25 0.50 1.00 High 0.50 0.50 1.50 Low 0.25 0.25 0.25 Commerzbank 0.25 0.50 1.50 Source: Bloomberg, Commerzbank Research ECB ECB Executive Board member Coeuré emphasised that the ECB could not agree to a debt relief that includes Greek bonds that are located at the ECB. Coeuré and ECB Council member Visco stressed that the ECB’s QE programme was “open-ended”. “If we haven’t achieved what we want to achieve,” said Coeuré, “then we’ll have to do more, or we have to do it for longer.” At the same time he warned that “we are absolutely convinced that whatever we do, it will not have as strong an impact if it is not accompanied by reforms.” ECB Executive Board member Praet said that the ECB expects negative inflation “for a very big part of this year”, with the turning point probably “around the third quarter”. According to Executive board member Mersch, monetary policy "at some point will reach its limits and we are very close to those already.” Unsurprisingly, ECB’s Weidmann reiterated doubts over the effectiveness of quantitative easing in the euro area's bank based economy at a time when yields are already extremely low. According to Weidmann, most monetary policy options had largely been used. ECB’s Knot, another hawk, said that he wasn’t convinced of the “necessity and effectiveness” of the QE programme. Dr Michael Schubert +49 69 136 23700 10 CHART 8: Expected interest rate for 3-month funds (EUR) 0,8 0,6 0,4 0,2 0,0 -0,2 current Mrz 15 Futures Jun 15 29.01.15 Sep 15 22.01.15 Dez 15 Mrz 16 Commerzbank TABLE 2: Consensus forecasts ECB minimum bid rate 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 30 January 2015 Economic Research | Week in Focus Central Bank Watch (2) Bank of England (BoE) In a recent newspaper interview, MPC member Andy Haldane suggested that the MPC is “in no rush to raise rates.” Whilst rates will not stay at historically low rates forever, “when [the] rise comes it is going to be very gradual … It could be half a percent a year for several years.” This is one of most dovish pronouncements from the MPC on UK rates for some time and highlights the extent to which the recent decline in commodity prices has impacted upon the BoE’s thinking. Indeed, with the oil price having averaged below $50/bbl throughout January, there is every likelihood that the inflation rate at the beginning of the year will have dipped ever closer to the zero threshold. Moreover, with 2014 GDP figures having been revised down towards the end of last year, together with a weaker-than-expected outturn for Q4, the 2015 growth projection – which will be presented to the MPC at next week’s meeting – will almost certainly be revised down. The market will be able to hang on to this as a reason to justify pricing interest rate increases further out into the future. Indeed the SONIA market is only pricing a 25 bps rate increase in 14 months’ time (the longest duration contract available) with a 55% probability. CHART 9: Expected interest rate for 3-month funds (GBP) 2,0 1,5 1,0 0,5 0,0 current Mrz 15 Jun 15 Sep 15 Dez 15 Mrz 16 Futures 29.01.15 22.01.15 Commerzbank Source: Bloomberg, Commerzbank Research Peter Dixon +44 20 7475 4806 RBA (Australia) The RBA has kept its key interest rate at 2.5% since September 2013. Moreover, in early December it also stuck to its outlook of stable interest rates . The economy was growing at a moderate rate, albeit with some slack remaining initially, it said. According to the meeting minutes, however, the members of the RBA Council agreed that further AUD depreciation would be necessary for growth to become more balanced following the slump in mining investment triggered by a nose-dive in commodity prices. A weaker AUD would improve businesses’ price competitiveness and could thus revive the non-mining economy. Now that several central banks recently lowered their key interest rates in surprise moves and the ECB has announced its QE programme, this has also driven rate cut expectations in Australia. However, these were dampened by the latest Australian inflation data. The relevant figures for the RBA came in surprisingly high. We believe the RBA will stick to its 2.5% key interest rate next week but mention the option of rate cuts in its interest outlook. Its new monetary report should feature the details of its latest forecasts and refer to the impact of the further slide in oil prices on the Australian economy. CHART 10: Expected interest rate for 3-month funds (AUD) 4,0 3,5 3,0 2,5 2,0 current Mrz 15 Jun 15 Futures 29.01.15 Sep 15 Dez 15 22.01.15 Mrz 16 Commerzbank Source: Bloomberg, Commerzbank Research Elisabeth Andreae +49 69 136 24052 30 January 2015 11 Economic Research | Week in Focus Markus Koch Tel. +49 69 136 87685 Bond market preview: Political markets: New Bund yield lows ahead! The interest rate markets in the euro area will probably continue to be mainly driven by political events. For this reason the incoming economic data will have little effect, even though, like inflation data from the euro area or the US employment report, they can normally move the markets. We continue to assume that the yield lows in long-dated Bunds are still ahead of us and have revised downwards our yield forecasts for the euro area and US Treasuries. TABLE 3: Weekly outlook for yields and curves Yields (10 years) Curve (2 - 10 years) Bunds US Treasuries Sideways Moderately rising Flatter Flatter Source: Commerzbank Research Outlook for the Bund future, 30 January – 6 February Economy ↓ Inflation ↑ Monetary policy ↑ Trend → Supply → Risk aversion ↑ Political events and the ECB’s bond purchase programme have pushed yields for ten-year Bunds to new all-time lows at around 0.3%. Politics will remain particularly in focus. This applies, of course, to developments in Greece. But the election of an Italian president, which began yesterday – normally not a market-moving event – could also have consequences, because elections in Southern Europe will remain a highly sensitive issue this year (chart 12). Against this backdrop, neither today’s consumer prices data from the euro area – the inflation rate presumably dropped to -0.6% in January – nor German industrial production at the end of next week should visibly move the markets. We continue to assume that Bunds have yet to see their yield lows. Moreover, we have revised our forecasts downwards against the backdrop of expected speculation about an expansion of the ECB’s bond purchase programme, global deflation fears and numerous political risks (chart 11). Some 60% of all outstanding Bunds are now trading at negative yield levels, and somewhat stronger economic activity in the euro area will not change this. In the US, we have slightly lowered our forecast profile, but still expect yields to rise (chart 11). We continue to assume that the Fed will raise interest rates earlier than is currently implied by forward rates on the US money market (see page 2). For this reason we see the yield of ten-year US Treasuries at around 2.3% by end-2015. This means the US yield curve would flatten from the short end, with the yield spread versus Bunds rising further. The employment report due out next Friday should confirm our outlook of strong economic growth in the US. But since monthon-month payroll gains will probably turn out slightly lower than in December, they are unlikely to provide fresh impetus for the market. Only a stronger wage increase will cause Treasury yields to rise more noticeably. CHART 11: Upward correction in store? CHART 12: Politics stress the BTP-Bund spread Yields of ten-year government bonds, in %, forecasts from February 2015 Ten-year government bonds, yield of Bunds and yield spread between Bunds and Italian bonds 5 4 3 2 1 0 2008 2009 2010 2011 2012 2013 UST Source: Bloomberg, Commerzbank Research 12 2014 2015 2016 Bunds Source: Global Insight, Commerzbank Research 30 January 2015 Economic Research | Week in Focus Esther Reichelt Tel. +49 69 136 41505 FX market preview: Monetary tectonic While the Fed is still on a normalisation course, most other G10 central banks are generally pursuing monetary easing. With this increasing divergence of monetary policy, the USD is getting stronger. We have adjusted our forecasts. TABLE 4: Expected trading ranges for next week Range Bias EUR-USD 1.1100-1.1700 Ò EUR-GBP 0.7400-0.7700 Range Bias Ò EUR-JPY 131.00-137.50 Ò GBP-USD 1.4850-1.5300 Î USD-JPY 115.00-121.00 Î EUR-CHF 1.0000-1.0800 Î Source: Commerzbank Research The fact that the ECB and Fed are marching in different monetary policy directions is not new. But the consequences of this have been underestimated on the whole so far. The ECB has now gone a step further and announced a surprisingly high volume for its planned purchase of government bonds. Furthermore, the ECB does not specify a definitive end to the purchases. These are intended to be carried out until September 2016. However, if inflation does not pick up, the programme can be extended. There is therefore much to suggest that euro weakness will last for quite a long time. As we believe the market is currently underestimating the Fed’s upcoming normalisation of monetary policy, we expect pressure on EUR-USD to continue. Against this backdrop, we anticipate much lower EUR-USD rates in the course of the year than previously predicted. That said, at 1.04 at year-end, EUR-USD should remain above parity. Unlike the Fed, other central banks have distanced themselves from a normalisation of monetary policy – with consequences for the respective currencies (Chart 13). It started with the Bank of England, which continued to push back its rate hike expectations due to falling inflation. The market meanwhile no longer expects an interest rate increase this year. Even more serious was the change in course of central banks of commodity currencies. Amid falling commodity prices – especially the much lower oil price – central banks in Norway and Canada have surprisingly lowered interest rates. We have therefore also adjusted our NOK and CAD forecast. On Tuesday, the Reserve Bank of Australia is likely to follow its neighbours in New Zealand and signal the possibility of rate cuts (Chart 14). CHART 13: Monetary policy course moves exchange rates CHART 14: Commodity prices fall Commodity prices, in AUD, year-on-year change in per cent Predicted change versus USD, January to December 2015 60 NOK SEK 40 NZD AUD 20 CAD 0 CHF GBP -20 JPY -40 EUR -20.0% -15.0% -10.0% Source: Commerzbank Research 30 January 2015 -5.0% 0.0% 5.0% 10.0% -60 2009 2010 2011 2012 2013 2014 2015 Source: Reserve Bank of Australia, Commerzbank Research 13 Economic Research | Week in Focus Andreas Hürkamp Tel. +49 69 136 45925 Equity Market preview: DAX should start sideways trends following ECB driven bull run The ifo recovery, the weak euro and the ECB QE have resulted in a 30% DAX rally since mid-October 2014. Many of our DAX bull trends have already been worked off, and risk factors such as the uncertain Fed policy, weakening growth in China, the crisis in Russia and the reform rollback in Germany might move onto investors' radar screen. Therefore the DAX should move sideways between 10,000 and 11,200 in the coming months. TABLE 5: DAX has outperformed S&P 500 by 12 percentage points in January Earnings 2015e Performance (%) since Index 31/12 30/09 Index points Growth (%) 30/06 current 31/12 current 31/12 current P/E 2015e 31/12 DAX 30 10,711 9.2 13.1 8.9 774.8 779.7 9.9 10.2 13.8 12.6 MDAX 18,720 10.5 17.0 11.3 1066 1053 14.2 13.9 17.6 16.1 Euro Stoxx 50 3,359 6.8 4.1 4.0 237.2 242.2 7.8 9.9 14.2 13.0 S&P 500 2,002 -2.8 1.5 2.1 121.6 124.7 5.1 7.6 16.5 16.5 Source: Commerzbank Corporates & Markets, I/B/E/S The DAX has already moved to our 2015 DAX fair value of 10,800, and three of the four key bull trends in our bullish DAX call in November have already boosted the DAX: • ifo recovery – since November the ifo index has already risen for three months in a row, • weakening euro – since November the euro has depreciated strongly, • falling € inflation expectations – the ECB started QE in January. The ifo recovery, the weakening euro and ECB QE have resulted in a powerful 17 percentage point outperformance of the DAX (up 15%) versus the S&P 500 (down 2%) since our 2015 outlook was published in mid-November. Our fourth key DAX bull trend – we expect DAX total dividends to rise by 13% to €30.3bn – should continue to support the DAX. However, in the coming months some of our key negative DAX trends might move onto investors radar screen. The tight US labour market should result in discussions about when the Fed is set to hike key rates. Economic data in China should remain lacklustre – we have a belowconsensus GDP growth forecast of 6.5%. Ukraine and Russia should remain key risk factors for DAX investors. And investors might start to discuss the reform rollback in German with a strong rise in wages against the backdrop of looming strikes in Germany. Since our November outlook, worldwide equity markets suffered a hefty decline in 2015 earnings forecast of 4% to 6%. Analysts have to factor in the new world of low nominal world GDP growth – 3% real world GDP growth, but very low inflation (chart 15). And since our outlook was published, European P/E ratios have risen strongly. For the Euro Stoxx 50, for example, the P/E ratio has risen to 14.2x which is nearly 30% above the 10-year average of 11.1x (chart 16). CHART 15: Worldwide decline in earnings expectations CHART 16: Euro Stoxx 50 P/E 30% above 10-year average Expected EPS 2015 for several indices, indexed, Feb 2013 = 100 Euro Stoxx 50: 12-month forward P/E over the last ten years 105 15 100 95 13 90 11 85 80 9 75 70 65 Jan-13 7 Jul-13 Jan-14 DAX Euro Stoxx 50 Source: I/B/E/S, Commerzbank Research 14 10-year average Jul-14 FTSE 100 S&P 500 Jan-15 5 2005 2007 2009 2011 2013 2015 Source: Factset, Commerzbank Research 30 January 2015 Economic Research | Week in Focus Barbara Lambrecht Tel. +49 69 136 22295 Commodities market preview: Platinum metals – a bit of fish, a bit of fowl The huge oversupply should continue to weigh on the oil price, as US stocks are set to mark a new record high next week. Base metal prices are likely to tread water as China’s Purchasing Managers’ Index should have barely changed in January. Palladium on the other hand is likely to profit from the booming car industry in the US. Cotton prices should also pick up as the US National Cotton Council will probably indicate a possible substantial decline in US acreage on the back of lower prices. TABLE 6: Trends in important commodities Per cent change 29 Jan. Trend Commodity specific events 1 week 1 month 1 year short-term Brent (USD a barrel) 48.7 0.1 -17.5 -54.3 Þ Copper (USD a ton) 5355 -5.5 -14.9 -24.9 Ö Gold (USD a troy ounce) 1273 -2.3 7.5 0.4 Ö ounce) 790 1.7 -2.5 10.5 Ü Cotton (USD/pound) 59 2.7 -4.3 -30.7 Ü Palladium (USD/a troy US crude oil stocks (4) US vehicle sales January (3) NCC: First estimate of US acreage (7) Source: Bloomberg, Commerzbank Research The breather on the oil market in Europe will probably end soon as Brent prices will presumably no longer be able to escape the downward pull on the other side of the Atlantic. Continually rising US crude stocks caused the price of WTI to drop to a 6-year low at mid-week. The build-up of stocks should continue for now, as it is currently very profitable to buy oil, store it and sell it forward. The front-month contract is about 10 dollars cheaper than the contract due in a year’s time (Chart 17). There is also more downside potential in the short term from the still-optimistic positioning of speculative investors. That said, low prices will dampen US shale oil production in the medium term, which will reduce market oversupply. Prices should therefore recover on a sustainable basis in the second half of the year. Platinum group metals are precious metals that are largely used in industry. Prices have therefore developed as follows so far this year: on the one hand, platinum and palladium have not risen in price as much as gold, on the other hand, their price has not fallen at such a sharp rate as base metals either (Chart 18). Platinum prices have outperformed palladium because of the high importance of platinum jewellery in China. Platinum is currently cheaper than gold, which should attract greater buying interest for jewellery. Palladium should catch up next week though; it is profiting more than its sister metal from the booming US car market, as it is primarily used in catalytic converters in gasoline engines. Both platinum group metals will clearly rise in price over the year in our view. CHART 17: Contango favours stockbuilding CHART 18: Platinum metals: partly precious, partly industrial Deviation of US crude oil stocks from 5-year average in million barrels, price gap between front-month WTI forward contract and contract due in 12 months in USD per barrel 70 60 50 40 30 20 10 0 -10 -20 -30 2005 indexed 31 December 2014 = 100 25 115 20 15 10 5 0 -5 -10 2007 2009 2011 US stocks (LS) Source: EIA ,Bloomberg, Commerzbank Research 30 January 2015 2013 -15 2015 Price gap (RS) 110 105 100 95 90 1/1/2015 Gold 1/10/2015 1/19/2015 Palladium Platin 1/28/2015 LMEX Source: LME, Bloomberg, Commerzbank Research 15 Economic Research | Week in Focus Commerzbank forecasts TABLE 7: Growth and inflation Real GDP (%) Inflation rate (%) 2014 2015 2016 2014 2015 2016 USA Canada 2.4 3.2 2.8 1.6 0.2 2.0 2.4 2.3 2.5 2.0 1.0 2.0 Japan 0.3 1.0 1.5 2.7 0.7 0.7 Euro area 0.8 1.1 1.2 0.4 -0.1 1.2 - Germany 1.5 1.5 1.7 0.9 0.5 2.4 - France 0.4 0.7 0.9 0.5 -0.1 0.7 - Italy -0.3 0.1 0.5 0.2 -0.4 0.7 - Spain 1.4 2.3 2.3 -0.1 -0.7 0.5 - Portugal 1.0 1.5 2.0 -0.4 -0.9 0.5 - Ireland 5.2 3.5 3.5 0.4 0.3 1.4 - Greece 1.0 2.0 2.5 -1.2 -1.5 0.0 United Kingdom 2.6 2.4 2.4 1.5 0.5 1.6 Switzerland 1.9 1.3 1.3 0.0 -1.5 0.0 China 7.3 6.5 6.5 2.3 2.0 2.0 India 5.8 6.2 6.2 6.5 6.2 6.0 Brazil 0.3 -0.3 1,1 6.3 6.8 6.4 Russia 0.6 -3.7 1.6 7.8 11.3 7.2 World 3.1 3.2 3.5 • The ultra-expansionary Fed policy is boosting the US economy. We expect US growth to markedly accelerate. • Growth in China is decelerating on decreasing house prices and gradual policy adjustment. • The recovery in the euro zone will only continue at a slow pace. GDP growth will remain markedly lower than that of the USA. • EMU has survived the sovereign debt crisis, but is gradually evolving into an “Italian-style monetary union”. • The German economy is set to continue outperforming the rest of the euro area – partly because ECB key 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 8: Interest rates (end-of-quarter) 29.01.2015 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Federal funds rate 0.25 0.25 0.25 0.50 1.00 1.50 3-months Libor 0.25 0.25 0.30 0.75 1.25 1.65 2 years* 0.51 0.55 0.70 1.10 1.75 2.30 5 years* 1.27 1.40 1.50 1.85 2.25 2.65 10 years* 1.75 1.90 2.00 2.20 2.30 2.40 Spread 10-2 years 124 135 130 110 55 10.00 Swap-Spread 10 years 15 10 10 15 15 15.00 Minimum bid rate 0.05 0.05 0.05 0.05 0.05 0.05 3-months Euribor 0.05 0.00 0.00 0.00 0.00 0.00 2 years* -0.18 -0.10 -0.10 -0.05 -0.05 -0.05 5 years* -0.03 0.00 0.00 0.05 0.05 0.05 10 years* 0.35 0.40 0.50 0.60 0.60 0.60 Spread 10-2 years 53 50 60 65 65 65 Swap-Spread 10 years 38 45 45 40 40 40 Bank Rate 0.50 0.50 0.50 0.50 0.50 0.75 3-months Libor 0.56 0.55 0.60 0.60 0.75 0.85 2 years* 0.36 0.40 0.60 0.90 1.10 1.30 10 years* 1.42 1.60 1.70 1.90 2.00 2.10 Q2 15 Q3 15 Q4 15 Q1 16 USA Euro area • Fed interest rate hikes are on the cards from September 2015, due to a continuously decreasing US unemployment rate and the expectation that wages will pick up. • The focus on the Fed’s lift-off will put moderate upward pressure on US$ long-end rates. A return to 2½% for 10y UST yields is only on the cards for mid-2016. The curve is in for a textbook-style flattening in the coming quarters, led by rising short-end rates. • We see a 40% chance that the ECB will increase the monthly volume of purchases of government bonds significantly in the second half of 2015. • 10y Bund yields are likely to mark new record lows in Q1 owing to the ECB’s QE. Thereafter, yields should edge up slowly. The structurally low interest rate environment remains intact for longer. • Risk premiums of peripheral government bonds are set to decline further amid ECB bond purchases. United Kingdom TABLE 9: Exchange rates (end-of-quarter) 29.01.2015 Q1 15 • USD should further profit from the expectations of Fed interest rate normalization. Current USD rates have not EUR/CHF 1.04 1.01 1.00 0.99 0.98 0.97 priced in the speed of rate hikes that we expect. EUR/GBP 0.75 0.75 0.74 0.72 0.71 0.70 • The euro is under pressure as a result of the EUR/SEK 9.31 9.20 9.10 9.00 9.10 9.15 persistent deflation fears in the euro zone and EUR/NOK 8.82 9.20 9.10 9.00 8.90 8.80 an ECB policy that could even expand government bond purchases. EUR/PLN 4.22 4.35 4.35 4.35 4.30 4.30 • CEE currencies have benefited from a dovish EUR/HUF 311 310 315 317 317 318 ECB backdrop, but rate cuts by local central EUR/CZK 27.82 28.50 29.00 29.00 29.00 29.00 banks will reverse these gains, going forward. HUF remains the vulnerable currency, while AUD/USD 0.78 0.82 0.81 0.79 0.77 0.78 PLN trade range-bound, and CZK continues to NZD/USD 0.73 0.75 0.73 0.71 0.70 0.69 float up towards 29.0. USD/CAD • The upward trend in CNY against USD should 1.25 1.24 1.26 1.28 1.30 1.32 continue to pause for the time being, due to USD/CNY 6.25 6.25 6.25 6.25 6.22 6.20 weaker growth in China and a strong dollar Source: Bloomberg. Commerzbank Economic Research; bold change on last week; * Treasuries, Bunds, Gilts, JGBs EUR/USD 1.13 1.12 1.10 1.06 1.04 1.02 USD/JPY 118 117 120 122 125 127 16 30 January 2015 Economic Research | Week in Focus Research contacts (E-Mail: [email protected]) Chief Economist Dr Jörg Krämer +49 69 136 23650 Economic Research Interest Rate & Credit Research FX Strategy Commodity Research Dr Jörg Krämer (Head) +49 69 136 23650 Christoph Rieger (Head) +49 69 136 87664 Ulrich Leuchtmann (Head) +49 69 136 23393 Eugen Weinberg (Head) +49 69 136 43417 Dr Ralph Solveen (Deputy Head; Germany) +49 69 136 22322 Alexander Aldinger +49 69 136 89004 Lutz Karpowitz +49 69 136 42152 Daniel Briesemann +49 69 136 29158 Elisabeth Andreae (Scandinavia. Australia) +49 69 136 24052 Rainer Guntermann +49 69 136 87506 Peter Kinsella +44 20 7475 3959 Carsten Fritsch +49 69 136 21006 Dr Christoph Balz (USA. Fed) +49 69 136 24889 Peggy Jäger +49 69 136 87508 Thu-Lan Nguyen +49 69 136 82878 Dr Michaela Kuhl +49 69 136 29363 Peter Dixon (UK. BoE). London +44 20 7475 4806 Markus Koch +49 69 136 87685 Esther Reichelt +49 69 136 41505 Barbara Lambrecht +49 69 136 22295 Dr Michael Schubert (ECB) +49 69 136 23700 Michael Leister +49 69 136 21264 Dr Michael Schubert (Quant) +49 69 136 23700 Equity Markets Strategy Eckart Tuchtfeld (German economic policy) +49 69 136 23888 David Schnautz +1 212 895 1993 Cross Asset Strategy Dr Marco Wagner (Germany. France. Italy) +49 69 136 84335 Benjamin Schröder +49 69 136 87622 Bernd Weidensteiner (USA. 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This document is being distributed in Australia to wholesale customers pursuant to an Australian financial services licence exemption for Commerzbank AG under Class Order 04/1313. Commerzbank AG is regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) under the laws of Germany which differ from Australian laws. © Commerzbank AG 2015. All rights reserved. Version 9.18 Commerzbank Corporates & Markets Frankfurt Commerzbank AG DLZ - Gebäude 2. Händlerhaus Mainzer Landstraße 153 60327 Frankfurt Tel: + 49 69 136 21200 18 London Commerzbank AG. London Branch PO BOX 52715 30 Gresham Street London. EC2P 2XY Tel: + 44 207 623 8000 New York Commerz Markets LLC 225 Liberty Street. 32nd floor New York. NY 10281 - 1050 Tel: + 1 212 703 4000 Singapore Branch Commerzbank AG 71. Robinson Road. #12-01 Singapore 068895 Tel: +65 631 10000 Hong Kong Branch Commerzbank AG 29/F. Two IFC 8 Finance Street Central Hong Kong Tel: +852 3988 0988 30 January 2015
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