Economic Research Week in Focus 6 February 2015 Grexit or compromise? The clock is ticking. If no agreement with creditor countries can be reached, a sovereign debt default is looming, and the ECB would have to turn off the liquidity tap to Greek banks. We outline which obstacles have to be overcome before an agreement is reached; how a compromise might look and what the risks are in the case of Grexit. Page 2 The Week in Focus in 100 seconds Please follow this link for a video summary. The Athens stock exchange is on a rollercoaster ride ASE: Stock market index Athens, day-on-day change in percent Source: Bloomberg, Commerzbank Research Sweden: What will the Riksbank do? In contrast to many other central banks faced with a disinflation problem, the Riksbank will probably restrict itself to promising a prolonged period of low key rates rather than adopt unconventional monetary measures. Page 5 Brazil: BRL facing headwinds on many fronts. Sluggish economic growth; weak public sector finances and a slower pace of capital inflows suggest that the Brazilian real will continue to face headwinds on many fronts in 2015. Page 6 Product Idea: 10y CMS Spread Range Accrual in US$. A 2-30y CMS spread range accrual with a 10y term may generate up to 3.2%, if the curve retains a slightly positive slope. Prospects of dollar gains may further enhance P&L performance. Page 7 Outlook for the week of 9 to 13 February 2015 Economic data: A euro zone GDP growth rate of 0.2% in Q4 would match the disappointing Q3 figure but Spain and Germany are likely to have outperformed whilst growth in France and Italy was virtually non-existent. Page 10 Bond market: Given the increasing risk of a political accident in Greece, long-dated Bund yields should again test this week’s lows whilst the yield spread between Bunds and tenyear US Treasuries should widen out. Page 13 FX market: The standoff between the Greek government and its European donors continues to drive EUR-USD. As long as an agreement remains uncertain, the euro's upside potential is likely to be limited. Page 14 Equity market: Despite the weak euro, rising German wage growth will compel many companies to take further restructuring measures. Page 15 Commodity market: The price recovery on oil markets is likely to be over for now as oversupply remains in place and the International Energy Agency is unlikely to revise US output expectations down as much as some expect. Page 16 Chief economist: Dr Jörg Krämer +49 69 136 23650 [email protected] For important disclosure information please see page 19. research.commerzbank.com / Bloomberg: CBKR / Research APP available Editor: Peter Dixon +44 20 7475 4806 [email protected] Economic Research | Week in Focus Christoph Weil Tel. +49 69 136 24041 Grexit or compromise? The clock is ticking. The new Greek government and public creditors do not have much time left to reach an agreement on a new rescue programme in order to provide Greece with more funds. If the ECB turns off the liquidity tap to Greek banks, Greece’s exit from the monetary union would be virtually inevitable. We outline what obstacles have to be removed before an agreement can be reached, how a compromise might look and an outline of the risks in the case of Grexit. Greece needs money Above all, Greece needs fresh funds; the gaps in the budget resulting from the latest shortfall in 1 tax intake have to be filled; expensive election promises have to be financed; interest has to be paid and maturing bonds have to be redeemed. In the next few weeks, the new finance minister 2 will have to dig deep into his bag of tricks to avert default. Calls for a radical haircut of public creditors (Chart 1) is presumably also part of the search for money sources. The government apparently hopes to become creditworthy to private investors through a much reduced debt burden and thus regain access to the capital market. But this is unlikely to happen; other euro zone countries are not prepared to accept a write-down on their notionals. Furthermore, the new government wants to roll back much of the reforms, which is hardly likely to strengthen investor confidence in a brighter future. A nerve-wracking game of poker has begun Without a new rescue programme that at least includes guarantees in the form of an enhanced conditions credit line (ECCL) from the European Stability Mechanism (ESM), this will not be possible, which explains the more moderate tone from Athens in the past few days. The government is no longer insisting on a formal haircut but would also accept a “disguised” haircut in the form of extended maturities and interest relief. Furthermore, the new Greek finance minister is promising a primary surplus of 1 to 1.5% of GDP, even if this means that some election promises will not be fulfilled. And in Brussels and other European capitals, the call for an easing of the austerity course in favour of “growth-supporting” measures has met with a positive response, which is precisely what Paris and Rome have been demanding for some time. That said, the road to a new programme is a stony one as it has to be unanimously agreed by euro finance ministers, and the prospect of granting fresh funds to Greece without hard conditions is unacceptable to many countries. In countries such as Germany, the Netherlands and Finland, it is virtually impossible to convince the electorate of this message and euro-sceptic political parties would be likely to gain further tailwind. CHART 1: 80% of debt owned by public debtors Greece public debt, in €bn 150 CHART 2: Banks have €56bn of debt at ECB Liabilities of Greek banks vs. ECB, in €bn, as of 31 December 2014 50 45 40 35 30 25 20 15 10 5 0 125 100 75 50 25 0 Source: EFSF, IMF, EU Commission, Bloomberg, Commerzbank Research 47.1 8.9 0.0 main refinancing operation LTROs ELA Source: Greek Central Bank, Commerzbank Research 1 Given the promised tax cuts, many Greek citizens are holding back on paying taxes. According to the Finance Ministry, tax revenues fell about €5bn short of the budget target from November to January. The government could dig into the social security fund and other state institutions, not pay bills and suspend tax refunds. 2 2 6 February 2015 Economic Research | Week in Focus The resistance is likely to be even greater from Ireland, Portugal and Spain. These countries have also been through a deep economic crisis but generally adhered to the bailout conditions. If the Greek government were to succeed in weakening them, the opposition in these countries, who are also demanding a change in policy, would gain further impetus. This especially applies to Spain, where the new Podemos party wants to follow a similar course to the new Greek government if it wins the parliamentary elections at the end of the year. The ECB will determine the timing of any agreement The ECB will ultimately decide how much time there is to agree on a new programme which is presently the only potential source of money for the Greek state. However, it will not agree to the planned 4-month bridging programme proposed by the Greek government, involving a sale of Tbills to Greek banks which would then be passed on for refinancing at the ECB. This would be an obvious case of monetary financing of states, from which the ECB is prohibited. Instead, it has announced that as of 11 February, it will no longer accept Greek bonds as collateral. For Greek banks this means that they will have to pay back a large part of the €56bn they borrowed from the ECB to make up for a lack of collateral (Chart 2, page 2). They could borrow the required funds from the Greek Central Bank in the form of emergency loans (ELA), but the ECB would not tolerate this state of uncertainty for long. As in the case of Cyprus, the 3 ECB could set the parties a deadline for agreeing on a new rescue programme. The latest date for agreement is likely to be the beginning of July (Chart 3, page 4), as the Greek finance minister has to pay bonds worth €3.5bn plus interest on 20 July, which it will be unable to do without fresh funds. How might a compromise look? Despite all the difficulties, we assume in our baseline scenario (likelihood of 75%) that a compromise will be reached as ultimately nobody wants Greece to leave monetary union. The compromise could look as follows: Debt relief: The current maturity of bilateral loans, which currently average 30 years, could be 4 extended again. Another possibility would be to link repayment to Greece’s economic recovery. Interest payments could be lowered by a few basis points and a ten-year moratorium on interest payments could be agreed, as is the case with the EFSF loans. However, there is unlikely to be any change on Greek government bonds held by the ECB (approximately €20bn). They not only carry higher interest but have to be redeemed in the coming years – the next bonds will mature in July (€3.5bn) and August (€3bn). The ECB has repeatedly refused a restructuring of these bonds. New money to service public debt: Greece is likely to receive new loans from the ESM under the new rescue programme in order to service its debt. Reform of tax administration and fight against corruption: In return, Greece will have to pledge to remain on a reform course. It should be easy to reach an agreement on reform of the tax system and a stronger fight against corruption. Scaling down reform measures: There will be no roll-back of reforms to the labour market or to the health and social insurance schemes, but the minimum wage and pensions for the particularly needy could be raised slightly. The announced end of the privatisation programme will probably remain in place and there are unlikely to be further cuts in public sector jobs. Moreover, calls for a lowering of access barriers to certain professional groups could be relaxed (though they have often not been implemented so far). Lower primary surplus: In the new programme, a primary surplus is still likely to be stipulated. However, at 1% of GDP, the target is likely to be much lower than agreed with the troika so far (4.5%). Less monitoring: The creditor states will keep a close eye on the Greek government. However, they will allow Greece more scope in implementing reforms and the troika’s quarterly reviews will probably no longer take place. 3 4 6 February 2015 Euro finance ministers could only overturn such an ultimatum by guaranteeing Greek securities submitted to the ECB. The Greek finance minister proposes a swap for bonds linked to nominal GDP. 3 Economic Research | Week in Focus Grexit: Economic chaos in Greece … In such a compromise, both sides would have to swallow some bitter medicine. The Greek government would break many of its election promises, while achieving a few (short-term) improvements, which could give some impetus to opposition parties in other countries. The bargaining game could therefore also fail. Should the bargaining game fail, Greece would likely default no later than July and the ECB would probably cap ELA loans for Greek banks, as their assets would no longer be accepted as collateral either. As this situation would probably also lead to a bank run, the banks would soon be illiquid and would have to close their counters. The Greek government would have no choice but to bail out banks with their own (new) currency, i.e. exit monetary union. The consequences for Greece would be dramatic. It would no longer be able to service its debt, the Greek government would rapidly collapse and the new Drachma would sharply depreciate, making all imported goods, including energy, very expensive. … whilst ECB limits consequences for the euro zone The euro zone would not come away unscathed either in the first round. The market would learn that membership of Monetary Union is not irreversible, which would suggest higher risk premiums for countries with strong euro-sceptic movements. However, the ECB would presumably subsequently activate its OMT programme and buy even more government bonds of these countries than already agreed under the programme decided in January. The mutualisation of sovereign debt would be pushed a step closer. The effects on the banking system should be controllable too, as the claims of foreign banks against the Greek state have been hugely reduced in recent years (Chart 4). Moreover, the ESM offers the possibility of using a tool to stabilise individual banks that encounter difficulties if need be. Grexit would no longer have the potential to trigger an Emu break-up. The tough road to compromise will not be without consequences for the financial markets. Once negotiations start to break down, the euro is likely to depreciate. Bund yields could then fall to new lows and risk premiums on bonds of periphery countries could rise again. CHART 3: Risk of default by July at the latest Upcoming payments of Greek state for interest and redemptions, in €bn 5 CHART 4: Withdrawal of foreign banks Foreign bank claims vis-à-vis Greece, in $bn 350 300 4 250 200 3 150 2 100 50 1 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Feb Mar Apr May Source: IMF, Bloomberg, Commerzbank Research 4 Jun Jul Aug vis-a-vis banks vis-a-vis public sector total Source: BIS, Commerzbank Research 6 February 2015 Economic Research | Week in Focus Sweden: What will the Riksbank do? Elisabeth Andreae Tel. +49 69 136 24052 Following the ECB’s announcement of a QE programme in January and surprising rate cuts by several central banks, next week’s meeting of the Swedish central bank is eagerly anticipated. The Riksbank is worried about an inflation rate that has mainly been negative since late 2012, and about falling inflation expectations. With its key rate at zero percent since October, the central bank can now only resort to non-standard measures. For now, it will probably continue to restrict itself to depressing longer-dated yields by promising a long period of low key rates. But it may demonstrate its willingness to take further action if the core inflation rate (adjusted for energy) does not continue rising as expected. The Riksbank is in a quandary: The Swedish economy is expected to expand at a rate of 2.5% in 2015, which would be somewhat quicker than in 2014 (about 2%). Stimulus to growth comes not only from low interest rates but also from cheap oil and the weaker krona. This makes a strong case against further monetary easing, especially since it would continue fuelling already-high private household debt. But the Riksbank is concerned about inflation, which long ago moved below its 2% target. Since longer-term inflation expectations are also falling, the bank in December expressed its resolve to drive the inflation rate back towards the 2% target as quickly as possible by implementing a more expansionary monetary policy. Next week, the Riksbank will probably once again restrict itself to providing forward guidance. It will likely postpone to the end of 2016, or later, the rate hikes which its latest interest rate outlook signalled for mid-2016. Given that the ECB and other central banks have recently decided to further relax monetary policy, the Riksbank could indeed announce bond purchases. While it did not use this tool after the global financial crisis, it has since made corresponding preparations. Council member Kerstin af Jochnick signalled in a recent speech that the Riksbank was now ready to act quickly if necessary. But she also pointed to the cost and risk of such an expanded central bank balance sheet. In light of recently better economic data; stronger-than-expected inflation and the weaker krona, we think it is more likely at this point that the central bank will keep its powder dry for now. Another option would be to further reduce the deposit rate (currently: -0.75%). And the Riksbank could also expand its interest rate band for fine-tuning operations on the overnight market. This is usually +/- 0.1 percentage points around the key rate, but in October it was set at zero together with the repo rate. Both measures would increase cost pressure on banks, but should send only a weak signal, if any, and so we think they are unlikely. In a first overview of potential measures for a more expansionary monetary policy, the Riksbank also mentioned influencing the exchange rate as a further option. This is because a weaker krona could increase inflation pressure via rising import prices. But the Swiss National Bank’s experience with its exchange-rate floor may dissuade the Riksbank from such a move. This suggests that FX market intervention or the announcement of exchange-rate limits are unlikely. Nevertheless, the central bank will probably keep an eye on the exchange rate and use other means if necessary. We also think it is unlikely to provide banks with loans at fixed interest rates over a limited duration – similar to 2009 – in exchange for collateral in the form of long-dated securities to underpin the credibility of its longer-term zero interest rate pledge. Unlike in 2009, there is currently no liquidity deficit – indeed there is a surplus in the Swedish banking system. If, as we expect, the Riksbank restricts itself to an extension of its forward guidance, expectations of further-reaching measures in the FX market will be disappointed. This would give the krona a lift versus the euro. 6 February 2015 5 Economic Research | Week in Focus Mario Robles Tel. +1 212 895 1581 Brazil: BRL facing headwinds on many fronts The Brazilian real should continue to face headwinds on many fronts in 2015. On the fiscal side, in spite of now having a plan to implement more austere spending and bringing in additional revenues to the government’s coffers, there are several events that could prevent fiscal adjustment reaching the pre-established goals. As always, politics may create difficulties in approving the newly designed fiscal policy (austerity) during congressional vetting. On the monetary front, while higher real rates could attract capital flows, the effect of slow growth and fiscal dynamics might prove to do little for a stronger BRL. Finally, corporate scandals will likely make things more difficult for capital to flow at the same pace as in 2014. In the months ahead, the Brazilian real will be facing additional headwinds on many fronts: • Growth in Brazil continues to face both cyclical and structural barriers. On the cyclical side of things, higher taxes, higher rates and fiscal restraint in public spending will be the main impediment to Brazilian growth. Our estimate for Brazilian growth in 2015 is already in negative territory at -0.3% (chart 6). On top of this, the external backdrop is not likely to help this time as the prices of commodities relevant for Brazil still show no clear signs of reaching a bottom. • Austerity measures jeopardized. President Rousseff’s support in the lower chamber is also declining. The PT party will likely only have limited capacity to set the agenda, which in our view may create impediments to the government’s austerity measures going through congress, particularly those related to pensions and other benefits. While the government can unilaterally apply the brakes to some discretionary expenditure items, the revenue side of the adjustment will likely be more difficult to approve with the first signs of this already showing up in income tax discussions that continue to delay the approval of the 2015 budget (chart 5). • Less direct investment? On the structural side of things, Brazil still has one of the lowest gross fixed investment rates in the region at c. 17% of GDP and unfortunately, we do not see any reform on the horizon that could change this pattern. In addition, corporate scandals in the oil sector (Petrobras) could further slow foreign direct investment flows and thus result in a further shrinking of gross fixed investment. If these factors eventually morph into reality then we face clear downside risks to our estimates. The growth outlook for 2016 is only slightly more optimistic, as we expect a rate of just 1.1%. What about the inflation fight? We expect the COPOM to hike the Selic rate further by another 50bp, in two 25bp instalments each to reach a terminal level of 12.75%, most likely by April 2015. We expect the central bank to thus continue to provide support for the BRL in the next few months. However, our view here is that ultimately the MoF would like a weaker BRL in order to support growth. We expect this programme will be slowly dismantled in the months to come and thus be one less source of support for the real. CHART 5: Budget situation … an uphill battle CHART 6: Growth should remain weak in 2015 • Primary budget balance, as % of GDP Real GDP, per cent changes on quarter and on year, forecast from 2014Q4 2,0 4 1,5 3 1,0 2 0,5 1 0,0 0 -0,5 -1 -1,0 2012 2013 2014 qoq (lhs) Source: Bloomberg, Commerzbank Research 6 2015 -2 yoy (rhs) Source: Bloomberg, Commerzbank Research 6 February 2015 Economic Research | Week in Focus Product idea: 10y CMS Spread Range Accrual in US$ Markus Koch +49 69 136 87685 Back tests suggest coupons of up to 3.2% p.a., plus scope for US dollar gains Current forwards suggest that the US$ 2-30y CMS curve spread will be printing negative readings. However, even with the advent of higher US Fed policy rates, a 2-30y curve inversion looks unlikely, in our view, as the 2s will not revisit historic highs. A 2-30y CMS spread range accrual with a 10y term may generate up to 3.2%, if the curve retains a slightly positive slope. Prospects of dollar gains may further enhance P&L performance. US labour markets are about to reach the Fed’s objective of maximum employment. Another prerequisite for the Committee to back away from its current patient stance are signs of wage inflation picking up. While the low oil price adds to US economic growth, it also keeps inflationary risks at bay, also helped by a stronger dollar. Prospects for Fed tightening at a time when inflation risks are deemed low has given rise to strong US$ flattening from both ends of the curve. Our economists have shown, however, that wage inflation looks set to pick up after a delay (see Week in Focus, 23 January), putting the extreme inversion discounted in forwards into question. In view of the advent of a new Fed rate cycle, we flag a familiar but nonetheless idiosyncratic pattern of forward US$ curve spreads. Specifically 2y vs. 30y IRS suggest that the US$ swap curve will be trading flattish from 2021 for years before finally entering inverse territory. This pattern is at odds with historical evidence, though. Specifically, extreme levels of Fed rates have indeed proved a rare and only transient phenomenon ever since the mid-1990s. Flattening trends in the 2-30y IRS curve spread have come to a halt and even reverted from a c. 0bp to 25bp band. Zooming in on the Fed’s next rate cycle we judge neutral levels to be reached earlier than in the past, not least due to adverse international spill-overs. Investors with a similar view of more contained long term interest rate cycles may capitalise on the (coupon) value inherent in a corresponding structured note which references the slope between the US$ 2y and the 30y CMS sector. We therefore recommended investing in a CMS spread range accrual in US$ with a 10-year term. The structure generates coupons as high as 3.2% annually, if the reference index (defined by the 2-30y CMS spread, see box) is fixed at 25bp or higher at every trading date. What are the coupon risks? One, back testing this 10y structure over the past 10 years reveals that the strikes have been triggered at only c. 8% of all (daily) fixings – historically the worst case. If history repeats itself, which we do not expect to happen to the same extent, future coupons may reach a minimum of 2.95%, based on our back test. Two, the spread regime i.e. the relationship between curve slope and overall rates trends, has undergone a considerable change during 2014. As a result, the swap curve holds the risk of further flattening, led by the long end. Conversely, if the Fed kicks-off in H2, a bearish resteepening looks more likely as a first move before a traditional bear flattening (led by short rates) gradually sets in. Under an extreme scenario, the curve could flatten fairly soon for an extended period, resulting in little if any coupon payments through redemption. Judging from the shift in the forward strip, though, the odds have improved only for a couple of years ahead whereas flattening risks implied by forwards have substantially declined from 2022. Finally note that given the structure’s denomination in US dollars, additional scope for the P&L opens up, depending on long-term currency performance. 10y CMS Spread Range Accrual in US$ (indicative) Issuer A- (average) Type: Registered bond (NSV) Maturity: 10 years Currency: US$ (non-quanto) Minimum lot US$1m Redemption: 100% Coupons: 3.2% * n/N; n: number of days conditions is met; N: number of days in period Condition: US$CMS30-US$CMS2 ≥ 0.25% EURUSD in 2020: 0.96e (estimate) Fixings: Daily, ISDAFIX® Payment: Annually, in arrears Basis: 30/360, adj., modified following 6 February 2015 7 Economic Research | Week in Focus Major publications from 30 January – 5 February 2015 Economic and Market Monitor: Our global view (February 2015) Starting in September 2015, the US central bank will probably raise its key rate, due to the declining unemployment rate. The markets still underestimate the extent of the likely rate hikes. The economy in the euro area is only recovering sluggishly, even if economic perspectives improved thanks to euro depreciation and lower oil prices. Owing to cheaper oil, the euro zone inflation rate will probably remain negative until the autumn. We can imagine that the ECB will increase the pace of its asset purchases. The German economy seems to have emerged from the stagnation seen last year. The lower oil price and the EUR-USD are falling on fertile grounds. For 2015, we expect economic growth of 1.5%. Significant risks may emerge from China, where property prices and debt levels have increased too rapidly in the past. The diverging monetary policies in the US and the euro area suggest that EUR-USD will continue to depreciate. Yields of ten-year Bunds have yet to see their lows and should only rise slightly in the second half of the year because of higher key rates in the US. Equities will also be affected by the reversal of the Fed’s interest rates. But on balance, German and European equities should profit from the fact that the ECB is driving investors into riskier assets with its zero interest rate policy. more EM Briefing: China – Don’t overreact to changes to the RRR The PBoC announced on Wednesday evening local time that it will cut the reserve requirement ratio (RRR) by 50bp, taking the RRR to 19.5%. The decision takes effect from Thursday. The markets will interpret this is as monetary easing although actually changes to the RRR are typically a formulaic response to changes in foreign exchange reserves. As such the market will overreact to the implications of this move. We still look for a further 25bp cut to the 12-month deposit and lending rate benchmarks in H1. The adjustment to the RRR does not affect our views on China or policy. more Credit Note: European Banks – Tier 1 – To call or not to call? We see rising risks that outstanding legacy Tier 1 may not be called if they offer banks some value towards TLAC. We identified BNP Paribas as one of those banks with a relevant TLAC gap. more FX Hotspot: Danes don’t lie Now that the SNB abandoned the minimum exchange rate without any prior warning the Danish central bank’s peg is also under fire. We warn against pigeonholing Danmarks Nationalbank so quickly. The hurdle to abandoning the peg is higher for the Danish than the Swiss. more FX Hotspot: EUR – Oversold? Our analysis suggests that whilst positioning is heavily one sided, valuation metrics indicate the EUR is far from being excessively cheap at current levels. more Commodity Spotlight Agriculturals: Grain, soybeans, cotton – autumn gains have already melted Price gains from early October to mid-December have been lost, particularly in the case of US wheat, but also in the case of US corn, soybeans and cotton. Euro prices in Paris for wheat, corn and rapeseed have performed much better. This is mainly due to the exchange rate trend – dollar strength and euro weakness. Prices should prove more robust in euro terms in the medium term too. Even so, we see moderate upside potential for US prices, mainly from a tightening market for wheat, corn and cotton in 2015/16. We remain sceptical on soybeans. more Commodity Spotlight Energy: Price explosion for crude oil – what lies ahead? Oil prices surged by 18% within three trading days, the sharpest rise in six years. OPEC’s strategy to push US shale oil producers out of the market appears to be working. In the short term, the price rise is exaggerated as there is still a substantial oversupply. We continue to expect a sustained price recovery in the second half of the year. more 8 6 February 2015 Economic Research | Week in Focus Preview – The week of 9 to 13 February 2015 Time Region Indicator Period Forecast Survey Last Monday, 9 February 2015 7:00 7:30 GER FRA Exports Business climate (BdF) Dec Jan mom, sa 2.0 97 – – -3.4 96 yoy mom yoy mom yoy, wda mom, sa yoy 1.0 0.3 1.0 – 1.5 -0.3 0.0 – 0.3 -0.4 0.3 0.2 0.9 -0.1 1.1 Dec mom, sa 2.0 2.3 1.3 Dec Jan Jan Feb 7 % mom, sa mom, sa mom, sa k, sa 0.00 0.3 -0.6 -0.8 285 0.00 0.3 -0.3 -0.3 – 0.00 0.2 -0.9 -1.0 278 qoq yoy qoq, sa yoy, wda qoq, wda yoy, wda qoq, sa yoy sa 0.1 0.3 0.4 1.1 0.0 -0.3 0.2 0.8 98.1 – 0.3 0.4 0.1 1.2 -0.1 -0.5 0.2 0.8 98.1 Tuesday, 10 February 2015 1:30 7:45 CHN FRA CPI Industrial production Jan Dec 9:00 ITA Industrial production Dec 9:30 GBR Industrial production Dec Wednesday, 11 February 2015 23:50 JPN Order intake manufacturing Thursday, 12 February 2015 8:30 10:00 • 13:30 SWE EUR USA Riksbank interest rate decision Industrial production Retail sales Retail sales ex autos Initial claims EUR: Leaders’ meeting in Brussels. Friday, 13 February 2015 6:30 FRA GDP Q4 7:00 GER GDP Q4 9:00 ITA GDP Q4 • 10:00 EUR GDP Q4 14:55 USA Consumer confidence (University of Michigan), preliminary Feb 0.2 1.1 – 0.2 0.8 98.1 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 6 February 2015 9 Economic Research | Week in Focus Dr Ralph Solveen Tel. +49 69 136 22322 Economic data preview: Euro zone: Separating the wheat from the chaff A growth rate of 0.2% in the final quarter of 2014 would suggest that the euro zone economy grew at a similarly poor rate as in the third quarter. However, there seem to have been significant discrepancies in performance at individual country level. While Spain, for instance, reported strong economic growth and Germany is also likely to have achieved a decent +0.4%, growth in the French and Italian economies appears to have been virtually non-existent. In the USA, household consumption benefits from collapsing oil prices but (nominal!) retail sales are likely to have been hit by lower gasoline prices. Next Friday, another set of data for the euro zone economy is due to be released. The figures are likely to confirm that the economy failed to gain traction in the fourth quarter, again growing at a poor rate of 0.2% quarter-on-quarter, i.e. at the same speed as in Q3. Discrepancies at the individual country level are likely to have increased considerably. Spain already reported a significant increase of 0.7% quarter-on quarter. We are also looking for quite decent growth of 0.4% in Germany. Details will not be released by the Federal Statistical Office until the end of the month. However, household consumption is likely to have made another considerable contribution to growth, with investment also expected to have expanded. While this is by no means consistent with a strong upswing, it would at least imply that the economy has emerged from its weak spot in the summer half-year. The French and Italian economies, by contrast, continued their poor performance. While the French economy is at least likely to have grown slightly – albeit less than in the third quarter – Italy appears to be in for stagnation. Although this would be consistent with some progress compared to the declines reported in previous quarters, it would still imply a very disappointing performance in view of the weaker euro and cheaper oil price. USA: Slump in gasoline prices weighing on retail sales The slump in gasoline prices dealt a significant blow to (nominal) US retail sales in January. Relative to December, gasoline prices (adjusted for seasonal effects) fell by 18%. Although this implies that consumers had more money left to buy other goods, we expect retail sales to fall by 0.6% (consensus: -0,3%) on balance in December. Yet this does not change the fact that household consumption remains a major driver of the economy. CHART 7: Euro zone – Discrepancies on the rise again Real GDP, quarter-on-quarter change in percent, 2014Q4 forecast except for Spain CHART 8:: USA – Slump in gasoline prices a relief for consumers Gasoline price, in dollar per gallon, seasonally adjusted according to consumer price index 4.0 1.0 0.8 0.6 3.5 0.4 0.2 3.0 0.0 -0.2 -0.4 2.5 -0.6 -0.8 2013 Germany 2014 France Source: Global Insight, Commerzbank Research 10 Italy 2.0 Spain 2013 2014 2015 Source: EIA, Global Insight, Commerzbank Research 6 February 2015 Economic Research | Week in Focus Central Bank Watch (1) Fed Several FOMC members want to grant more flexibility to the Fed in hiking interest rates. For instance, St. Louis Fed President Bullard demanded that the reference to the Fed being “patient” in raising interest rates be dropped at the March meeting. While this would not necessarily imply that the Fed was about to hike interest rates in the near-term, it would offer the Fed “optionality” for subsequent FOMC meetings, Bullard went on. Loretta Mester, Cleveland Fed President, said in a speech that interest rate hikes would be appropriate “soon”. Monetary policy would have to be carried out in a forwardlooking manner. The first interest rate hike should therefore be implemented before all Fed targets had been met, she said. Inflation is currently running significantly below target. In December, the core rate of inflation dropped to 1.3%. Moreover, inflation expectations have come down considerably – something Bullard is also worried about. At 2%, five-year inflation expectations five years forward are currently trading 50 basis points below the level reached in mid-2014. However, many Fed members believe that falling oil prices have also played their part. To receive a more accurate picture, one would have to wait for a stabilisation first. Bernd Weidensteiner +49 69 136 24527 CHART 9: 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 05.02.15 29.01.15 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 The ECB announced that it would no longer accept Greek government debt as collateral for its regular refinancing operations (see p. 2). “It is currently not possible to assume a successful conclusion of the programme review” for Greece, the ECB said in a press release. Because Greek government bonds are junk rated, and thus below the ECB’s minimum threshold, Greek banks have relied on a waiver to post collateral for ECB financing through the central bank’s regular facilities. However, Greek banks will still have access to funds through the so-called Emergency Liquidity Assistance (ELA). Under that facility, the credit risk of the loans stays on the books of the Greek central bank, and the loans carry a higher interest rate. ECB Executive Board member Coeuré stressed that “now monetary policy is sufficiently expansionary. All of the lights are green: 2015 could see significant growth and our surveys show that banks are passing on the reduction in interest rates to their customers more than they did in the past.” He confirmed that the ECB’s QE programme is open-ended: “When it will end is therefore not an urgent issue, it will be assessed based on a range of indicators, including inflation expectations.” Dr Michael Schubert +49 69 136 23700 6 February 2015 CHART 10: 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 05.02.15 Sep 15 29.01.15 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 11 Economic Research | Week in Focus Central Bank Watch (2) Bank of England (BoE) The BoE’s policy inactivity is no longer simply a product of its own decisions: It is increasingly the result of global forces which have robbed the BoE of its ability to act. On the one hand the decline in commodity prices which threatens to push January CPI inflation close to zero, makes life difficult for a central bank which nominally targets an inflation rate of 2%. Such has been the influence exerted by this factor that the two MPC members who recently called for a 25 bps rate hike have now changed their views – despite the fact they previously argued that we should look through temporary dips in inflation triggered by commodities. The second constraint is the impact which a rate rise may have on the pound, particularly when other central banks are engaged in monetary loosening resulting in a weakening of their currencies (intentionally or otherwise). One of the key issues discussed at this month’s MPC meeting will have been the BoE’s latest economic forecast, due for public release along with the Inflation Report on 12 February. With GDP data having proved weaker than anticipated in recent months (partly as a result of revisions to historical data), we look for 2015 GDP growth forecast to be revised down slightly. However, the good news is that low inflation will raise growth volumes so that any downward revisions are likely to be modest. Of more interest will be the inflation projection which is likely to show at least one quarter of near-zero or even negative inflation in the near-term. MPC member Kristin Forbes recently noted that “inflation [c]ould fall more in the next few quarters than in the November forecast.” CHART 11: Expected interest rate for 3-month funds (GBP) 2,0 1,5 1,0 0,5 0,0 current Mrz 15 05.02.15 Jun 15 Futures Sep 15 29.01.15 Dez 15 Mrz 16 Commerzbank Source: Bloomberg, Commerzbank Research Peter Dixon +44 20 7475 4806 BoJ (Bank of Japan) The Bank of Japan continues to struggle to reach its inflation target. BoJ Governor Kuroda assured Parliament that inflation would be back at the 2% target “some time” in fiscal 2015 (1 April 2015 to 31 March 2016). Adjusted for the effects of the VAT increase in April 2014, inflation remains stuck way below this threshold, with the trend still pointing in the wrong direction. The government is trying to support the BoJ's policy by repeatedly appealing to companies to allow for higher wages – with limited success so far. However, the medium-term outlook is better. The rate of unemployment dropped to an 18-year low of 3.4%. For every applicant 1.15 job vacancies were reported as of end-2014, which is the highest level since 1992. Wage pressure is therefore likely to increase sooner or later. The BoJ will stick to its aggressive monetary policy for now, especially with another dove soon to join the bank’s Board: The government has nominated Yutaka Harada, an outright advocate of expansionary monetary policy, for an imminent vacancy. CHART 12: Expected interest rate for 3-month funds (AUD) 1,0 0,8 0,6 0,4 0,2 0,0 current Mrz 15 Jun 15 Sep 15 Dez 15 Mrz 16 Futures 05.02.15 29.01.15 Commerzbank Source: Bloomberg, Commerzbank Research Bernd Weidensteiner +49 69 136 24527 12 6 February 2015 Economic Research | Week in Focus Markus Koch Tel. +49 69 136 87685 Bond market preview: Bigger yield spread between Bunds and Treasuries ahead Price movements in Bunds will likely continue being driven by politics in the near-term; the next important event on the agenda is the EU summit in the week ahead. Given the increasing risk of a political accident in Greece, long-dated Bund yields should test this week’s yield lows again. Since today’s US employment data will simultaneously weigh primarily on US Treasuries, the yield spread between Bunds and ten-year US Treasuries should widen out. TABLE 3: Weekly outlook for yields and curves Yield (10 years) Curve (2 - 10 years) Bunds US Treasuries Slightly lower Moderately rising Flatter Slightly steeper Source: Commerzbank Research Outlook for the Bund future, 6 – 13 February Economy → Inflation → Monetary policy → Trend → Supply → Risk aversion ↑ The discussion about Greece’s future, coupled with the ECB’s upcoming bond purchase programme, has caused yields of ten-year Bunds to fall to new record lows just below 0.3% (chart 13). Since the Tsipras government’s so far rather vague plans have not met with approval in Berlin and Frankfurt, and the ECB will no longer accept Greek government bonds as collateral for its tender operations starting next week, Greece’s banks are now hanging by the thread of Emergency Liquidity Assistance (see page 2). This increases pressure on Greece to show readiness to compromise at next Thursday’s informal meeting of the heads of state and government. But we would advise against unrealistically high expectations. It is unlikely that the Greek government will already be willing to go back on its campaign promises. Therefore, “accident risk” will remain high at least this month, which tends to argue for a flight to safe havens. As a consequence, yields of long-dated Bunds should once again test their recent lows. Today, the market participants’ attention will probably focus on the US labour market. It is to be assumed that January saw more than 200k new jobs being created, with the unemployment rate presumably dropping to 5.5%. To be sure, the pace of job growth should fall short of the (very high) December figures. But as could be seen clearly from the latest US employment data (ADP report, jobless claims) this week, market anxiety is increasing noticeably, even though wage inflation is not accelerating yet. Against this backdrop, yields of ten-year US Treasuries look set to rise. Since the corresponding Bunds will probably remain dominated by developments in politics, this points to an increase in the Treasury-Bund 10-year yield spread to as much as 150 basis points (chart 14). CHART 13: Stress factor politics – Will Greece make it? Ten-year government bonds: Yield of Bunds and yield spread versus Italian bonds Source: Bloomberg, Commerzbank Research 6 February 2015 CHART 14: Yield spread between Bunds and Treasuries to widen out soon? Yield spread between ten-year Bunds and US Treasuries, in basis points Source: Global Insight, Commerzbank Research 13 Economic Research | Week in Focus Thu Lan Nguyen Tel. +49 69 136 82878 FX market preview: Fears about Greece and inflation dominate The state of negotiations between the Greek government in Athens and its European donors continues to move EUR-USD. As long as an agreement remains uncertain, the euro's upside potential is likely to be limited. As regards the Fed and BoE, the low level of inflation remains in focus. TABLE 4: Expected trading ranges for next week Range Trend EUR-USD 1.1200-1.1600 EUR-GBP 0.7300-0.7600 Range Trend EUR-JPY 132.00-136.00 GBP-USD 1.5050-1.5600 USD-JPY 115.00-120.00 EUR-CHF 1.0350-1.0800 Source: Commerzbank Research After EUR-USD had virtually been “glued” to the 1.1300-1.1360 range for a week, it started moving again recently – triggered by news out of Greece. When the Greek government turned increasingly willing to compromise on the demands of its donors, this provided a tailwind to the euro. However, this sharp rise was over quickly as news spread that the ECB would no longer accept Greek government bonds as collateral for their loans. The market’s reactions show that a potential “Grexit” has not yet lost all of its terrors. News on the Greek drama is therefore also likely to move the market next week and limit the euro’s upside. On the other side of the Atlantic, all eyes are on today’s US labour market. Payrolls growth had long been in the centre of attention as the Fed concentrated on its full-employment target following the crisis. By now, its appears to have almost reached this target, though. Weak inflation is now a greater concern for the Fed, thus moving wage trends into focus (chart 15). If wage growth were to remain weak, this would add to speculation that the normalization of monetary policy will not take place this year, which would put enormous pressure on the USD. In the UK, the Bank of England (BoE) is also concerned about the low level of inflation. In December, inflation stood at 0.5%, which is its lowest level since 1960 (chart 16). In its Inflation Report, the BoE will likely revise its inflation forecasts to the downside against this backdrop. Consequently, interest rate hikes are off the agenda for now. However, as the BoE – unlike most other G10 central banks – has so far made no efforts to ease monetary policy, the pound is likely to remain relatively strong. CHART 15: US wage growth remains weak Average hourly wages, month-on-month and year-on-year change in percent 0,6 Chart 16: UK – Inflation keeps falling … Consumer price index, year-on-year change in percent 2,5 9.0 8.0 0,4 2,0 0,2 7.0 6.0 5.0 1,5 0,0 4.0 3.0 2.0 -0,2 2010 2011 2012 mom (lhs) 2013 2014 yoy (rhs) Source: Bureau of Labor Statistics, Commerzbank Research 14 1,0 1.0 0.0 1989 1993 1997 2001 2005 2009 2013 Source: National Statistical Office, Commerzbank Research 6 February 2015 Economic Research | Week in Focus Markus Wallner Tel. +49 69 136 21747 Equity Market preview: Rising wage pressure should lead to further restructuring The soft euro and the more upbeat sales expectations for German businesses that partly arise from this should not detract from the fact that stronger wage growth will compel many German companies to take further restructuring measures. This applies especially to businesses whose operating income shows a relatively strong sensitivity to changes in personnel costs. Examples of these are Deutsche Post and Lanxess, which have already initiated restructuring measures. TABLE 5: DAX to maintain strong momentum Earnings 2015E Performance (%) since Index points Growth (%) Index 31/01 31/12 30/06 Current 31/12 DAX 30 10,911 2.0 11.3 11.0 773.0 MDAX 18,922 1.8 11.7 12.5 1063 Euro Stoxx 50 3,416 1.9 8.6 5.8 S&P 500 2,042 2.3 -0.8 4.2 P&E 2015E Current 31/12 Current 31/12 779.7 8.1 10.2 14.1 12.6 1053 14.1 13.9 17.8 16.1 235.6 242.2 10.2 9.9 14.5 13.0 120.3 124.7 3.9 7.6 17.0 16.5 Source: Commerzbank Research, I/B/E/S German companies profit proportionally from restructuring the higher their ratio of fixed costs to operating income. Since at most German businesses, personnel costs account for the largest part of fixed costs, the greatest potential is also found there. At Deutsche Lufthansa, for example, a 1% reduction in total personnel costs would increase operating income by nearly 5%. If personnel costs were to be lowered by 1% only in Germany, the gain in operating income would amount to 3.7% (chart 17). Prospects of higher wage settlements in light of the trade unions’ current wage claims (metalworkers: +5.5%; mining, chemicals and energy: +4.8%), coupled with the introduction of the minimum wage, look set to intensify cost pressure in many sectors, thereby triggering additional restructuring measures. This applies especially to businesses that incur a large part of their personnel costs in Germany. Restructuring should lead to higher valuations, especially for those companies whose price-tobook value ratios are still relatively low – meaning that their restructuring plans are not yet fully priced into their share price – and whose operating income reacts relatively strongly to reductions in fixed costs (personnel cost, write-downs). This should be the case e.g. with Lanxess and K+S. CHART 17: DAX – Personnel costs often strongly impact on corporate income Change in operating income in 2015 on 1% change in personnel cost 6 5 4 3 2 German labour costs HEI DB1 FME HEN3 LIN ADS BEI EOAN BAYN SAP MRK BAS BMW FRE CON IFX DAI RWE SIE VOW3 DTE LXS SDF TKA DPW 0 LHA 1 Total labour costs Source: Bloomberg, Commerzbank Research 6 February 2015 15 Economic Research | Week in Focus Barbara Lambrecht Tel. +49 69 136 22295 Commodities market preview: No trend reversal yet on the oil market The price recovery on oil markets is likely to be over for now. The energy agencies' outlooks for the first half of the year will likely still feature major supply surpluses and the International Energy Agency is unlikely to revise its US output expectations to the downside as much as some expect. Robust Chinese copper imports should support base metal prices. With the US Department of Agriculture likely to revise its forecasts only slightly, grain prices are unlikely to react much. TABLE 6: Trends in important commodities Per cent change 5 Feb. 1 week 1 month Tendency Commodity specific events 1 year short-term Brent (USD a barrel) 55.2 12.4 4.0 -48.0 Copper (USD a ton) 5618 4.1 -8.6 -20.2 Gold (USD a troy ounce) 1260 0.2 4.6 0.2 US wheat (USD a bushel) 513 1.0 -12.9 -12.7 Oil Market Reports OPEC (9), IEA, EIA (10) Imports January (8) WGC: Gold Demand Trends in Q4/2014 (12) WASDE (10) Source: Bloomberg, Commerzbank Research Oil prices are moving in a zigzag fashion: After recovering massively, by just under 20% within just four trading days, they lost up to 9% as of mid-week. Volatility is running as high as last seen in the midst of the financial crisis in early 2009 (chart 18). Back then, prices increased from USD 36 to USD 50 within seven trading days, only to quickly drop back to USD 40. This time, too, we believe it is still too early for a sustainable trend reversal. In the first half of the year, oversupply is likely to remain in place, thus further pushing up US inventories which have already reached record levels. This is likely to be supported by the latest forecasts from the three energy agencies. Here, the International Energy Agency’s medium-term outlook for supply and demand in the next five years should be of particular interest. Last summer, the IEA had been looking for non-OPEC supply to grow by just over 6 million barrels per day from 2013 to 2019, with more than half expected to be of North American origin. By now, the IEA is likely to have turned much more sceptical. However, it is unlikely to lower its forecasts as much as expected by some market players following the slump in the number of active US oil rigs. This should weigh on oil prices. Only once the rise in US oil production actually starts stalling – something we expect to happen in early summer – are oil prices likely to recover on a sustainable basis. The fact that the gold price dropped to a 4½-year low in November 2014 apparently pointed to weak demand in the last three months of 2014. Quarterly data from the World Gold Council are likely to support this (chart 19). In the final quarter of the year, ETF investors had been gold sellers in particular. At 87 tonnes, gold sales from ETFs were as high as in the previous three quarters together. Since mid-January, ETF holdings have been on the rise again. However, with speculative investors driving the price rally at the start of the year, we see the risk of another near-term setback. CHART 18: Massive rise in oil market volatility CHART 19: Investors have lost their interest in gold CBOE volatility index for oil Gold demand per quarter in tonnes 100 1400 1200 1000 800 600 400 200 0 -200 -400 90 80 70 60 50 40 30 20 10 0 2009 2010 2011 2012 2013 Source: CBOE, Bloomberg, Commerzbank Research 16 2014 2015 2008 Jewelry 2009 2010 Bars and Coins 2011 2012 2013 ETFs Technology 2014 Official Sector Source: WGC, Commerzbank Research 6 February 2015 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 Q3 15 Q4 15 Q1 16 • 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) 05.02.2015 Q1 15 Q2 15 USA Federal funds rate 0.25 0.25 0.25 0.50 1.00 1.50 3-months Libor 0.26 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* 1.28 1.40 1.50 1.85 2.25 2.65 10 years* 1.78 1.90 2.00 2.20 2.30 2.40 Spread 10-2 years 127 135 130 110 55 10 Swap-Spread 10 years 14 10 10 15 15 15 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* -0.20 -0.10 -0.10 -0.05 -0.05 -0.05 5 years* -0.04 0.00 0.00 0.05 0.05 0.05 10 years* 0.36 0.40 0.50 0.60 0.60 0.60 Spread 10-2 years 56 50 60 65 65 65 Swap-Spread 10 years 36 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* 0.39 0.40 0.60 0.90 1.10 1.30 10 years* 1.51 1.60 1.70 1.90 2.00 2.10 Euro area United Kingdom • Fed interest rate hikes are on the cards from 2015Q3, due to a continuously decreasing US unemployment rate and the expectation that inflation will gradually rise once the oil price has stabilised. • 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. • 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. • Risk premiums of peripheral government bonds are set to decline further amid ECB bond purchases. TABLE 9: Exchange rates (end-of-quarter) 05.02.2015 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 EUR/USD 1.14 1.12 1.10 1.06 1.04 1.02 USD/JPY 117 117 120 122 125 127 EUR/CHF 1.06 1.01 1.00 0.99 0.98 0.97 EUR/GBP 0.75 0.75 0.74 0.72 0.71 0.70 EUR/SEK 9.45 9.20 9.10 9.00 9.10 9.15 EUR/NOK 8.67 9.20 9.10 9.00 8.90 8.80 EUR/PLN 4.18 4.35 4.35 4.35 4.30 4.30 EUR/HUF 308 310 315 317 317 318 EUR/CZK 27.75 28.50 29.00 29.00 29.00 29.00 AUD/USD 0.78 0.82 0.81 0.79 0.77 0.78 NZD/USD 0.74 0.75 0.73 0.71 0.70 0.69 USD/CAD USD/CNY 1.25 1.24 1.26 1.28 1.30 1.32 • 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 euro is under pressure as a result of the persistent deflation fears in the euro zone and an ECB policy that could even expand government bond purchases. • CEE currencies tend to devalue. • We see the PBoC “allowing” the CNY to remain on the weaker side in H1, following its rate cuts to support the economy. 6.25 6.25 6.25 6.25 6.22 6.20 Source: Bloomberg. Commerzbank Economic Research; bold change on last week; * Treasuries, Bunds, Gilts, JGBs 6 February 2015 17 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. Fed) +49 69 136 24527 Dr Patrick Kohlmann (Head Non-Financials) +49 69 136 22411 Markus Wallner +49 69 136 21747 Ted Packmohr (Head Covered Bonds and Financials) +49 69 136 87571 Achim Matzke (Head) +49 69 136 29138 Christoph Weil (Euro area) +49 69 136 24041 Emerging Markets Dr Simon Quijano-Evans (Head) +44 20 7475 9200 Dr Bernd Meyer (Head) +49 69 136 87788 Christoph Dolleschal (Deputy Head Research) +49 69 136 21255 Andreas Hürkamp +49 69 136 45925 Technical Analysis Other publications (examples) Economic Research: Economic Briefing (up-to-date comment on main indicators and events) Economic Insight (detailed analysis of selected topics) Economic and Market Monitor (chart book presenting our monthly global view) Commodity Research: Commodity Daily (up-to-date comment on commodities markets) Commodity Spotlight (weekly analysis of commodities markets and forecasts) Interest Rate & Credit Research: Ahead of the Curve (flagship publication with analysis and trading strategy for global bond markets European Sunrise (daily comment and trading strategy for euro area bond markets) Rates Radar (ad-hoc topics and trading ideas for bond markets) Covered Bonds Weekly (weekly analysis of the covered bonds markets) Credit Morning Breeze (daily overview on European credit market) Credit Note (trading recommendations for institutional investors) FX Strategy: Daily Currency Briefing (daily comment and forecasts for FX markets) Hot Spots (in-depth analysis of FX market topics) FX Alpha (monthly analyses. models. and trading strategies for FX markets) Weekly Equity Monitor (weekly outlook on equity markets and quarterly company reports) Equity Markets Strategy: Monthly Equity Monitor (monthly outlook on earnings. valuation. and sentiment on equity markets) Digging in Deutschland (thematic research focusing on the German equity market) Emerging Markets: EM Week Ahead (weekly preview on events of upcoming week) EM Briefing (up-to-date comment of important indicators and events) EM Outlook (quarterly flagship publication with EM economic analysis and strategy recommendation) Cross Asset: Cross Asset Monitor (weekly market overview. incl. sentiment and risk indicators) Cross Asset Outlook (monthly analysis of global financial markets and tactical asset allocation) Cross Asset Feature (special reports on cross-asset themes) To receive these publications, please ask your Commerzbank contact. 18 6 February 2015 Economic Research | Week in Focus This document has been created and published by the Corporates & Markets division of Commerzbank AG. 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