China`s heavily indebted corporate sector, Week in Focus, 15

Transcription

Economic Research
Week in Focus
15 January 2016
China’s highly indebted corporate sector
China's corporate debt has rapidly soared since 2008. We have taken a closer look at data
for 2,500 firms which revealed two main causes for concern. One is that companies in
sectors suffering from excess capacity and falling profit margins tend to be highly indebted.
Secondly, debt levels have risen particularly rapidly in state-run enterprises, which the
government evidently wants to keep afloat at any cost. However, firms kept alive artificially
will withdraw funds which would otherwise be made available to healthier businesses, thus
affecting all of the economy (“zombification”). China is facing a tough time economically,
and as a result the renminbi seems set to devalue further.
Page 2
The Week in Focus in 100 seconds
Please follow this link for a video summary.
Everything is in decline
Change on year-end 2015 in per cent, oil price: Brent Blend in USD, China: CSI 300, Germany: DAX,
USA: S&P 500
0
-2
-4
-6
-8
-10
-12
-14
-16
-18
-20
Oil
China
Germany
USA
Source: Bloomberg, Commerzbank Research
Oil prices – what is behind the slump?
Concern about China in particular has sent the oil price downward again. Although we have
reduced our average price forecast for the year, we do look for higher prices by year-end.
After all, US oil production is expected to decline sharply, which would eliminate much of the
excess supply on the oil market.
Page 5
ECB Council meeting: Pausing for now: We expect no new measures at Thursday’s
meeting. However, ECB President Draghi will likely keep all options open.
Page 7
Product idea: € 8-year Fixed-to-Collared Floater: This product allows investors to bridge
the period of negative money market rates, and to eventually profit once they begin to turn
up.
Page 8
Outlook for the week of 18 to 22 January 2016
Economic data: The uptrend in euro zone PMIs is unlikely to have continued in January. In
the USA, underlying inflation pressure is on the rise.
Page 11
Bond market: The volatility of Bund yields is likely to continue next week and ten-year yields
could be set for another test of the 0.5% mark
Page 14
FX market: EUR-USD is expected to remain largely unaffected by shocks from the Far East but
is still set for a volatile sideways movement over the week ahead.
Page 15
Equity market: Despite a miserable start to the year, we look for the DAX to perform well
over the year in a pattern reminiscent of 1991.
Page 16
Commodity market: Although the oil price has little upside potential right now, industrial
metals are expected to show more stability next week.
Page 17
For important disclosure information please see page 20.
research.commerzbank.com / Bloomberg: CBKR / Research APP available
Chief economist:
Dr Jörg Krämer
+49 69 136 23650
[email protected]
Editor:
Peter Dixon
+44 20 7475 4806
[email protected]
Economic Research | Week in Focus
Lutz Karpowitz
Tel. +49 136 42152
Hao Zhou
Tel. +65 63110166
China’s highly indebted corporate sector
Since the outbreak of the financial market crisis in 2008, China's corporate debt has
rapidly soared. We have taken a closer look at data for 2,500 firms which revealed two
main causes for concern. One is that companies in sectors suffering from excess
capacity and falling profit margins tend to be highly indebted. Secondly, debt levels have
risen particularly rapidly in state-run enterprises, which the government evidently wants
to keep afloat at any cost. However, firms kept alive artificially will withdraw funds which
would otherwise be made available to healthier businesses, thus affecting all of the
economy (“zombification”). China is facing a tough time economically, and as a result the
1
renminbi seems set to devalue further.
Galloping corporate debt
According to the Bank for International Settlements, China's corporate debt now amounts to
161% of GDP. This represents an increase of 62.3 percentage points since the start of the
financial crisis (see chart 1). Debt expansion of this kind is of course not unusual in a rapidly
growing economy, as companies need to invest to support growth, and this is often conducted
via new borrowing. However, the rate of increase in China has been far more rapid than in other
emerging markets, some of which have also seen strong growth in recent years.
… most notable in particular sectors
To better understand the risks, we have taken a closer look at the balance sheets of 2,500 listed
companies in China, using data of the wind data base. It is striking that indebtedness is
concentrated primarily in particular sectors of the economy (see chart 2, p.3). More than 80% of
corporate debt is accounted for by manufacturing (32%), real-estate and construction (29.3%)
and mining and energy production (23.3%). On top of this, debt levels are rising even though the
economy is slowing down.
High debt levels conceal risks
This is a particular problem in the real-estate and building sector where the ratio of net liabilities
to EBITDA (earnings before interest, taxes, depreciation and amortisation) – the earnings
leverage – has more than doubled since the start of the financial market crisis, from 1.92 to 4.38
(see chart 3, p.3). Consequently, there is now a far greater danger of businesses being unable to
service their debts in the long run. The debt ratio has continued to rise steadily in mining and
energy production as well, albeit on a smaller scale, whereas in industry it has more or less been
moving sideways.
CHART 1: China – steep rise in corporate debt
Debts of non-financial companies as percentage of GDP and change in percentage points since financial
market crisis
70
CN
Change since Q4 07
(percentage point)
60
50
40
TR
30
20
10
RU
PL CZ
IN
MX
0
DE
-10
-20
BR
HU
US
EU
JP
UK
0
20
40
60
80
100
120
140
160
180
Debt to GDP ratio Q2 15 (%)
Source: BIS, Commerzbank Research
1
For a detailed analysis, see "China’s corporate debt – the elephant in the room?“, EM Briefing, 15 January
2016.
2
15 January 2016
CHART 2: Debt still rising rapidly …
Debt of non-financial companies listed on Shanghai, Shenzhen and
Hong Kong exchanges, in billion CNY
CHART 3: … placing mounting strain on businesses
Debt ratio (net debt/EBITDA)
25
5,0
20
4,0
15
3,0
10
2,0
5
1,0
0
2003
2005
2007
2009
Mining and utilities
Real estate and construction
2011
2013
0,0
2007 2008 2009 2010
Real estate & construction
Mining & utilities
Manufacturing
Others
Source: Wind, Commerzbank Research
2011 2012 2013
Manufacturing
2014
To some extent, the higher debt ratio is the result of weaker earnings growth. In the real-estate
and building sectors, for example, earnings were up almost 50% on average from 2007 to 2009,
but in 2014 the figure was only a little over 5% (see chart 4). In response, the pace of investment
in this field has been scaled down in recent years, but it remains in the double-digit range.
Companies are still adding to their already ample capacity. The IMF estimates that even if
investment in the real-estate sector were to fall in the next few years, it would still take roughly
five years to reduce the surplus capacity built up in recent years (see chart 5). Nor has the
banking sector shown much response to the far more precarious situation it now faces. Faced
with mounting risks, it ought to have become increasingly cautious in its lending practices.
Interest rates should actually rise, and lending volumes fall. There is little evidence, though, of
either happening so far.
State supporting its own enterprises
One plausible explanation for this phenomenon is the state’s determination to prop up the
enterprises it controls at any price. The IMF calculates that some 80% of China's corporate debt
is accounted for by state-run organisations, which is well above their share in output (about twothirds). In addition, balance sheet leverage of state-run enterprises has actually risen in recent
years, and particularly so in those companies which were already running a high debt ratio (see
2
chart 6). Whereas the private sector has reacted in conventional manner to the gloomier
economic environment in terms of more cautious capital spending, the state-run sector has so
far failed to do so.
CHART 4: Investment still rising despite surplus capacity
Real-estate and construction: earnings and investment, % change on
year
80
70
60
50
40
30
20
10
0
-10
-20
CHART 5: China needs several years' of adjustment
Housing: new starts, sales (two-year lead time) and surplus supply, in
million square metres
1600
1400
1200
1000
800
600
400
200
0
-200
2007
2008
2009
2010
Profits
2011
2012
2013
Fixed asset investment
2014
1995
2000
2005
Excess supply
2010
2015
2020
Floor space started
Floor space sold (2 years lead)
2
In its analysis of corporate balance sheets, the IMF uses a slightly different definition of debt ratio from
ours, but this does not alter its basic conclusions.
15 January 2016
3
In other countries, too, governments repeatedly try to stabilise large businesses that have run
into difficulties in order to avoid job losses. Given that China's banking sector is dominated by
the state, the government will probably find it far easier (and thus more tempting) to keep
unprofitable enterprises going.
This is not a sustainable solution, though, as the recovery prospects of ailing companies in an
ailing sector are generally poor. In the longer term, too, a state-run banking system such as
China's will not manage to provide sufficient credit to keep these companies afloat. Moreover,
state funding is limited. The liabilities of state-run businesses, estimated at around 130% of
GDP, are far higher than the PBoC's foreign-currency reserves, which currently stand at roughly
33% of GDP.
… thus weakening private sector
Before this stage, however, efforts to keep state banks alive will have an adverse effect on
economic growth, as the capital channelled into these 'zombies' will be in correspondingly short
supply elsewhere, meaning that private enterprises in particular will find it more difficult to
borrow. Deregulation of capital movement, and with it the option of taking money out of the
country, has left businesses competing for less and less capital, which at one time was in ample
supply (and this in turn contributed largely to the latest excesses).
Is Beijing reversing deregulation?
Since the exodus of capital has far exceeded China's foreign-trade surplus for some time,
currency reserves have already dipped sharply (see chart 7). This poses a dilemma for Beijing:
On the one hand, it needs to provide businesses with sufficient dollar liquidity. It also wants to
avoid the renminbi depreciating too quickly, hence its intervention on the forex market. On the
other hand, however, China's currency reserves must not be allowed to shrink too rapidly in case
the market panics. One option would of course be to reverse liberalisation of capital movement
to some extent. We have had a taste of what this would mean over the past few days, when
restrictions on the exchange of CNY and CNH have pushed up the overnight rate on the CNH
market to well over 60%.
In view of the loss of face such an economic U-turn would bring, however, the government will
refrain from backtracking on deregulation for as long as possible, which should stem the outflow
of capital. There will be no quick fix for China's economic headaches, given the scale of the
excesses of recent years. This in turn points to further yuan losses versus the dollar.
CHART 6: State-run companies are the problem
CHART 7: Impact of capital exodus already being felt
Gross debt versus equity capital, ratio in per cent
Currency reserves in bn USD
4000
4
3500
3
3000
2
2500
2000
1
1500
0
2003
2004
2005
2006
2007
2009
2010
2011
2012
2013
SOEs, total
Priv. companies, total
90th percentile - SOEs
90th percentile - priv. companies
Source: IMF, Commerzbank Research
4
2008
1000
500
2005
2007
2009
2011
2013
2015
15 January 2016
Oil prices – What is driving the slump?
Carsten Fritsch
Tel. +49 69 136 21006
Oil prices have dropped by almost 20 percent since the start of the year to a level last
seen twelve years ago. This comes on the back of concern over Chinese demand, as well
as more robust-than-expected oil production. Consequently, we have considerably
lowered our oil price forecast. However, the reduction in supply which we expect in the
second half, continues to argue for oil prices to increase in the course of the year.
Concern over China sending oil prices south
Since the start of the year, oil prices have slumped by almost 20 percent. Brent recently hit USD
30 per barrel – a low last seen in the spring of 2004 (Chart 8). The recent price slide had been
triggered by market turmoil in China, with concern over weaker demand in the second-largest oil
consuming country increasing as a result. After all, around one third of the rise in global oil
demand in recent years was due to China. Moreover, OPEC continues to produce just over 1
million barrels of crude oil per day in excess of demand (Chart 9). Even after its meeting in early
December, the cartel retained its low-price strategy aimed at squeezing other producers out of
the market and defending market share. Ultimately, the rise in tensions between Saudi Arabia
and Iran since the start of the year has increased the risk of a price war – even within OPEC. If
Iran were to expand its oil supply as sanctions are lifted, Saudi Arabia might start a price
dumping competition, in a bid to make it more difficult for Iran to regain market share.
Most of these arguments are not really new, nor can they be confirmed by available data. For
instance, Iran’s upcoming return to the market has been known for the last six months and
Chinese oil imports recently even marked record highs. We therefore believe the latest drop in
prices is overdone.
The major driving factor: robust non-OPEC supply
Undoubtedly, the major drop in oil prices in recent months was driven by much higher-thanexpected non-OPEC oil production. Last year, Russian oil production rose to a level last seen
before the collapse of the Soviet Union. This has been helped by the weak rouble, allowing
Russian oil producers to cover their costs despite the low level of oil prices. The situation is
similar in Canada where, so far, oil production has not reacted to the slump in prices either.
However, the factor most underestimated by the market is US oil production. Although the oil rig
count dropped by 65% since the start of 2015, we only noted a very minor fall in oil production.
This is partly due to new production sites in the Gulf of Mexico and in Alaska. However, US
onshore production (excluding Alaska) also fell only slightly: While the rig count was last as low
in April 2010, oil production is still almost 4 million barrels per day, or around 70%, higher than at
the time. This has been helped by massive productivity gains and a large backlog in
uncompleted wells.
CHART 8: Oil was last as cheap in the spring of 2004
Brent Blend, USD per barrel
160
CHART 9: OPEC production remains way above demand
OPEC oil production in million barrels per day, grey lines: estimate of
demand for OPEC oil in 2015 and 2016 (dashed)
33
140
32
120
100
80
30
60
29
40
28
20
0
2004
in 2016
31
2006
2008
2010
15 January 2016
2012
2014
2016
IEA estimate for call on
OPEC in 2015
27
2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Reuters, IEA, Commerzbank Research
5
Stronger slide in US oil production is only a matter of time …
However, in coming months, low drilling activity is likely to hit US oil production considerably.
Even with these productivity gains (which are now slowing), we must consider that, in shale oil
formations, production per well drops much more quickly from its initial level than in conventional
oil wells – by 72 percent on average in the first twelve months. Moreover, many shale oil
producers who have so far benefited from hedging activity and falling production costs will
increasingly run into financial trouble and drop out of the market. The US Energy Information
Administration expects daily US crude oil production to fall to 8.25 million barrels by late
summer, which would be around 1 million barrels less than today (Chart 10).
This is unlikely to be offset by higher production in other non-OPEC countries. After all,
according to the International Energy Agency IEA, major oil companies cut investment in oil
projects by over 20 percent last year, which should gradually start to weigh on production. For
2016, IEA forecasts the strongest decline in non-OPEC oil supply since 1992 (Chart 11). With
global oil demand in 2016 likely to rise by up to 1.4 million barrels per day, the supply overhang
should disappear in the second half of the year.
… which argues for a price recovery
While the latest price collapse and the bearish factors outlined above have prompted us to lower
our oil price forecast significantly, especially with a view to the next few months, we still expect
oil prices to move up in the course of the year. By year-end, Brent should be back at USD 50 per
barrel (previous forecast: USD 63).
USA and euro zone: Inflation likely to remain close to zero for
longer
But even then, the price of oil should be much lower over the course of the year compared to
what we had assumed in our inflation forecasts so far. Energy prices are likely to send inflation
rates lower well into autumn, implying that inflation should increase at a much lower rate this
year than previously expected. For 2016, we now only forecast an average annual rate of
inflation of 1.5% (previously 2.0%) in the USA and only 0.3% in the euro zone (1.2%).
Some doves on the ECB Council may regard the fact that euro zone inflation is likely to hover
around zero for longer as an argument for further monetary easing. Moreover, the ECB Council
would probably not be pleased if another drop in oil prices – which is certainly possible near-term
– were to send inflation expectations further south. However, what is most relevant for the
additional minor easing of monetary policy we expect is that the ECB will presumably be forced
to lower its 2016 forecast for core inflation (excluding food and energy) from the current estimate
of 1.3% (Commerzbank forecast: 0.9%). Even with the low level of oil prices, the Fed is unlikely
to refrain from further rate hikes. It would only do so in case of a further escalation of the
situation in the emerging markets, if at all.
CHART 10: USA – Production remains stable despite lower
rig counts
US crude oil production in million barrels per day, oil rig count
Non-OPEC crude oil production, year-on-year change in million
barrels per day
10
1800
2.5
9
1500
2.0
EIA
forecast
8
1200
1.5
1.0
7
900
6
600
5
300
-0.5
4
2009 2010 2011 2012 2013 2014 2015 2016
0
-1.0
US crude oil produktion, lS
Source: Baker Hughes, EIA, Commerzbank Research
6
CHART 11: Strongest fall in production since 1992?
Oil rig count, rS
0.5
0.0
-1.5
Forecast IEA 2016
1990 1993 1996 1999 2002 2005 2008 2011 2014
Source: IEA, Commerzbank Research
15 January 2016
Dr Michael Schubert
Tel. +49 69 136 23700
ECB Council meeting: Pausing for now
Following the measures decided in early December, we expect no new steps at
Thursday’s meeting. At the press conference, ECB President Draghi will probably keep all
options open while avoiding clear signals.
Mario Draghi may express himself more carefully than he did recently, as the ECB was criticised
after its last meeting for having raised false expectations. In an interview in late December, ECB
Vice President Constancio conceded that the central bank had made certain mistakes: “Both
sides need to learn lessons. … But we also have to communicate better. … we did not want to
give the markets such a surprise.” Moreover, it is likely that widely differing views are still held in
the ECB Council.
Economic activity is satisfactory…
Those who oppose further measures are likely to point mainly to what they consider to be
satisfactory developments in economic activity. Euro zone economic data released since the last
Council meeting in early December has on balance exceeded expectations (Chart 12): Our
surprise index has been rising since last summer, signalling that this is a longer-term
development.
Also, the Council will probably have the new findings of the ECB’s Survey of Professional
Forecasters (SPF) available at the meeting, although the data should only be officially released
one day later. Based on surveys conducted in early January, it is to be expected that the
consensus regards the ECB’s expectation of 1.7% growth in 2016 as realistic (while we forecast
a noticeably lower growth rate of 1.3%).
…but inflation (expectation) disappoints
In contrast, those who favour additional measures will likely point to the still very low level of
inflation. From the ECB’s perspective an even more important fact than the recent further decline
in the oil price may be that the core inflation rate posted a rate of only 0.9% in December, which
has made the central bank projection of 1.3% for the core rate in 2016 more unrealistic.
Also, the ECB’s preferred measure of longer-term market-based inflation expectations has
recently fallen again: The expectation for inflation for the coming five years in five years’ time,
which is calculated from inflation swaps (“5x5 expectation”), stands at 1.60%, only slightly above
the all-time low from January 2015 (1.48%, chart 13). Concerns should grow in the ECB Council
if survey-based inflation expectations also pointed in the same direction. In the last survey, the
probability according to the SPF of the ECB falling short of its target long-term was still twice as
high as before the financial crisis.
Advocates and opponents of further measures will probably agree to wait for the ECB
projections to be updated in March before discussing further steps.
CHART 12: Euro zone – economic data surprises to the
upside
Surprise index: Cumulated, standardised deviations between
released and expected economic indicators in the euro zone,
1 January 2015 = 0
2.7
60
2.5
50
2.3
2.1
40
1.9
30
1.7
20
1.5
1.3
2005
10
Sep-15
Nov-15
15 January 2016
Five-year inflation-indexed forward swap rate five years forward,
probability according to the SPF that the inflation rate will be below
1.5% in five years’ time (inverted scale)
2.9
70
0
Jul-15
CHART 13: Euro zone inflation expectations still very low
Jan-16
2007
2009
2011
market expectation (5x5, lhs)
2013
2015
5
10
15
20
25
30
35
40
45
50
SPF (rhs)
Source: ECB, Bloomberg, Commerzbank Research
7
Product idea: € 8-year Fixed-to-Collared Floater
Markus Koch
+49 69 136 87685
Bridging the yield draught
We suggest investing in a fixed-to-collared floater with an 8-year term to bridge money
market and short end rates in the euro area with fixed coupons over the next three years.
With the ECB printing ‘enough money’, inflation will ‘always’ return, creating ample scope
to generate positive long term pick-ups, based on our structure. To guarantee minimum
coupons at all times while at the same time generating value during the floating period,
the note features a collar i.e. a coupon floor at 1% coupled with a reasonable cap at 2.5%.
The trajectory of euro area money markets looks to be a foregone conclusion, long term, judging
by the EONIA forward strip. Fundamentally, current growth concerns in China coupled with the
ongoing oil price collapse have spurred disinflation concerns. As ECB easing hopes rekindle,
EONIA and Euribor forward strips have softened further, by more than 10bp since the ECB’s
December meeting. A March rate cut is currently in priced with an approx. 50% probability.
Looking ahead, the 3-month Euribor rate is priced to show positive prints no earlier than mid2018, highlighted by Knot’s view that the €QE campaign will ultimately prove a ‘rather lengthy
process’. ECB’s Praet further elaborates that inflation will eventually pick up ‘if you print enough
money. Always!’ The upshot is that after passing the current rate trough, we look for money
market rates to surge on the back of reflation materialising in a few years’ time. To enhance
income during the low yield environment in the euro area, we present our investment idea which
starts ‘flying’ when Euribor rates rise in a few years’ time.
For investors who share our Euribor view reminiscent of an elongated J-curve, we suggest
investing in a fixed-to-collared floater with an 8-year term. During the first three years, the
structure features fixed coupons of €1% p.a. as a bridge to negative € yields, albeit at a
moderately negative carry versus matched-maturity, fixed rate notes of the same issuer. From
year 4 onwards, though, coupons will be indexed by the 3-month Euribor (see box). To
guarantee a minimum yield at all times while at the same time generating value during the
floating period, the note features a collar i.e. a coupon floor at 1% coupled with a reasonable cap
at 2.5%.
If the index path develops as implied by forwards, the average coupon will reach c. 1.1% p.a.
over the 8y term. If during the floating period the index rises above the current forward strip (i.e.
from year 4 to maturity), as is our view, the coupons would boost the structure’s average yield
and vice versa. More specifically, the coupons will reach 1.95% on average at best while printing
coupons of 1% p.a. on average in the worst case.
If the ECB were to exit from its ultra-expansionary stance in a few years’ time, prospects of
incurring a pick-up would improve considerably even with a modest tightening. Specifically, to
break even a matched-maturity, fixed rate note it suffices for the reference index to rise to c.
1.5% on average during the floating period, which is not an overly bold assumption if inflation
risks resurface.
€ 8y Fixed-to-Collared Floater (indicative)
Issuer
Type:
Maturity:
Currency:
Minimum lot
Reference index (RI):
Coupons:
Cap:
Floor:
Redemption:
Fixing:
Payment:
8
BBB+ (average)
Note
8 years
€
€5m (coupon haircut with smaller size)
3-month Euribor
Y1-3: 1% p.a.
Y4-8: Max(RI, 1%)
2.5%
1%
100%
Quarterly, in advance
Quarterly, in arrears
15 January 2016
Major publications from 8 – 14 January 2016
Economic Insight: France and Italy – Reforms are not helping much
so far
In France and Italy, the reforms of recent years have not really brought the breakthrough hoped
for. Unlike ten years ago in Germany, and recently in Spain, company earnings margins have
not risen on a sustainable basis, which depresses investment and job growth. Furthermore, as
the high debt burden of companies and private households is dampening the economy and the
correction on the housing market is not yet over, the economy in both countries should grow only
moderately, which will provide the ECB with arguments for further monetary easing. more
Economic Briefing: Very strong US jobs growth in December
US companies added jobs at a stronger pace in December, suggesting confidence in the
outlook. Overall, 292k jobs were created while the unemployment rate held at 5.0%. Wages
stagnated, but only due to a statistical quirk. All in all the report suggests that the Fed is likely to
raise interest rates further with the next move presumably coming in March. more
EM Briefing: China’s FX reserves plunged again
China’s FX reserves dropped dramatically in the last two months of 2015, reflecting continuous
market interventions from PBoC. However, the intensive intervention has not slowed the pace of
CNY depreciation. more
Rates Radar: The positive zero-sum game
The surprise ‘revival’ of Catalan independence raises concerns of re-emerging political risks, but
we argue that SPGB underperformance will be contained. Higher Catalonia risks imply lower
risks at the national level with moderate forces set to benefit – particularly in a second election.
We recommend using further SPGB-underperformance to enter longs vs. 10y BTPs and hold on
to our periphery-Bund tightener. more
Rates Radar: Portugal – Quality of supply deteriorates sharply
Portugal published its first monthly investor presentation since October. Looking at the details,
we have raised our forecast of the IGCP’s gross 2016 PGB supply to €21bn from €18bn. The
quality of financing needs deteriorates sharply: selling PGBs to substitute ‘expensive’ IMF loans
drops. Instead, funds will be required for a €2bn higher deficit. We confirm our constructive
medium- to long-term view on Portugal within peripherals. more
FX Insight: ARPI² update –Uncertainty markedly higher on China
and oil
Compared to last week, the ARPI² rose 0.7 index points which was predominantly due to higher
emerging markets and commodity risks. China shares continued to tumble, with the Shanghai
Composite Index closing below the 3000 level for the first time since August. In addition, crude
oil prices dipped to a 12-year low this week. more
Cross Asset Outlook Update: Too much of the same
We expected more of the same at the beginning of this year as the turning points of year-long
trends, such as commodity price weakness, capital flight from EM, tumbling EM currencies and EM
equities and low inflation, would only be likely to start to build from the middle of the year. The
current market behaviour is therefore not surprising, but the intensity of the market reaction is. As in
similar episodes of risk aversion in recent months and years, we are again convinced that the
current rise in volatility is not the precursor of a severe slowdown in growth and thus not the end of
the cycle. Consequently, investors should not chase the current wave of risk aversion. For
investors with low risk asset exposure, the current situation may even evolve into a buying
opportunity. The currently elevated level of volatility, and the fact that a meaningful calming in
markets is likely to result in the Fed hiking rates again in March, makes covered call writing on US
equities attractive in our view. more
15 January 2016
9
Preview – The week of 18 to 22 January 2016
Time
Region Indicator
Period
Forecast
Survey
Last
Monday, 18 January 2016
No relevant data is due for release.
Tuesday, 19 January 2016
•
2:00
CHN
Industrial production
Dec
yoy
6.0
6.1
6.2
Q4
Dec
Jan
Jan
yoy
yoy
6.8
0.0
10.0
61
6.9
0.1
5.0
61
6.9
0.1
16.1
61
Unemployment (claimant count)
Dec
mom, k, sa
5.0
4.0
3.9
Wages (three-month average)
Unemployment rate (ILO)
CPI
CPI excl. food and energy
Housing starts
Housing permits
Nov
Nov
Dec
Dec
Dec
Dec
yoy
%, sa
mom, sa
mom, sa
SAAR, k
SAAR, k
2.2
5.2
0.0
0.2
1230
1200
2.1
5.2
0.0
0.2
1195
1200
2.4
5.2
0.0
0.2
1173
1282
%
0.50
0.50
0.50
16 Jan
Jan
Jan
sa
yoy
yoy
%
k, sa
sa
sa
102
0.2
0.9
0.05
275
-4.0
-5.5
–
0.2
0.9
0.05
–
-2.0
-6.0
101
0.2 (p)
0.9 (p)
0.05
284
-5.9
-5.7
Jan
Jan
Jan
Jan
Jan
sa
sa
sa
sa
sa
51.0
51.0
52.5
55.5
53.0
–
–
53.0
55.5
53.1
51.4
49.8
53.2
56.0
53.2
Jan
Dec
sa
mom, sa
yoy
SAAR, mn
54.0
0.6
4.4
5.0
54.2
0.3
4.1
5.12
54.2
1.7
3.9
4.76
GDP
9:30 GBR
CPI
10:00 GER
ZEW Index
15:00 USA
NAHB Index
EUR: ECB releases Bank Lending Survey (9 a.m.)
sa
Wednesday, 20 January 2016
9:30
GBR
13:30
USA
16:00
CAD
BoC interest rate decision
Thursday, 21 January 2016
7:45
10:00
FRA
EUR
12:45
13:30
USA
15:00
EUR
Business climate (Insee)
HICP, final
HICP excl. food and energy
ECB interest rate decision
Initial claims
Philadelphia Fed Index
Consumer confidence
Jan
Dec
Dec
Friday, 22 January 2016
•
8:00
FRA
8:30
GER
9:00
EUR
PMI, manufacturing
PMI, services
PMI, manufacturing
PMI, services
PMI, manufacturing
9:30
GBR
PMI, services
Retail sales
15:00 USA
Existing home sales
Dec
EUR: ECB releases Survey of Professional Forecasters
WEF: World Economic Forum Annual Meeting in Davos (22/23 January)
Source: Bloomberg. Commerzbank Economic Research; *Time GMT (subtract 5 hours for EST. add 1 hour for CET). # = Possible release; mom/qoq/yoy: change
to previous period in percent. AR = annual rate. sa = seasonal adjusted. wda = working days adjusted; • = data of highest importance for markets
10
15 January 2016
Christoph Weil
Tel. +49 69 136 24041
Economic data preview:
Euro zone: Sentiment completely decoupled?
Based on ‘hard’ data, the euro-zone economy only grew by 0.25% quarter-on-quarter in
the last three months of 2015. Nevertheless, business sentiment has continued improving
until recently. However, the problems in China, which are becoming increasingly visible,
should soon spoil the party. Sentiment on financial markets has already turned at the
start of the year. In our view, the uptrend in the euro-zone purchasing managers’ indices
(PMIs) is unlikely to have continued in January. In the USA, underlying inflation pressure
is on the rise.
In the euro zone, the uptrend in industrial production came to a halt in the spring of 2015. Yet
this does not appear to weigh on sentiment in the manufacturing sector. On the contrary, the
manufacturing PMI in December climbed to its highest level since April 2014 (Chart 14). This
positive sentiment is likely above all to reflect hopes of a better performance this year. Such
hopes are supported by improved price competitiveness as result of the euro’s depreciation in
the second half of 2014 and early 2015. In addition, most businesses are likely to regard the
collapse in commodity prices, particularly crude oil, as a blessing as it lowers their production
costs.
However, the economic outlook has been hit considerably at the start of the year. The problems
in China are increasingly being felt, threatening to pull global growth in 2016 lower as well.
Financial investors have reacted already, with global equity prices nose-diving as a result. We
expect economic sentiment to deteriorate as well in the next few months. The euro zone
manufacturing PMI is likely to have ended its uptrend in January. In detail, we are looking for a
reading of 53.0, after 53.2 in December (consensus: 53.1). The services PMI should also drop
slightly, to 54.0 (consensus: 54.2).
Weaker PMIs would support our expectation that lower demand from the emerging markets will
not leave the euro zone economy unaffected. Remember: Our 1.3% growth forecast for the euro
zone in 2016 has been below most analysts’ expectations for some time.
USA: Underlying inflation pressure on the rise, despite oil price drop
In the USA, too, the drop in oil prices is weighing on inflation. Consequently, consumer prices
are likely to have remained unchanged month-on-month in December (consensus 0.0%). The
price index excluding energy and food, on the other hand, appears to be set for a 0.2% increase
on the month (consensus 0.2%). This would send the year-on-year rate higher, from 2.0% to
2.1% – the highest level since the summer of 2012 (Chart 15).
CHART 14: Euro zone – Decoupled from global economy?
Manufacturing PMI, seasonally adjusted monthly data
60
CHART 15: USA – Core inflation trending slightly higher
Consumer prices excluding energy and food, year-on-year changes in
percent
2.4
2.3
55
2.2
2.1
50
2.0
1.9
45
1.8
1.7
40
2001
2003
2005
2007
2009
Euro zone
Source: Global Insight, Commerzbank Research
15 January 2016
2011
2013
world ex euro zone
2015
1.6
1.5
2012
2013
2014
2015
Source: Global Insight, Commerzbank Research
11
Central Bank Watch (1)
Fed
In Congress, efforts to tighten the rein on the Fed have not
been successful so far. On Tuesday, a draft law (“Audit the
Fed”) failed to clear the threshold of 60 yes-votes in the
Senate, at 53 to 44. Only with this majority would various
procedural hurdles for a fast legislative process have been
overcome. Consequently, “Audit the Fed“ is unlikely to have
much prospect of success this year. The Fed will be relieved
about this; Janet Yellen and other FOMC members had
clearly spoken out against the legislative proposal amidst
concerns about the Fed’s independence.
The Fed admits that the financial markets have made a very
volatile start to the new year. However, several FOMC
members are warning against overreacting to these
movements as, in the words of Dallas Fed president Robert
Kaplan, it is not sure what these price fluctuations actually
say about the US domestic economic trend. His colleague
Rosengren from the Boston Fed underlined that the Fed
takes note of market opinions but monetary policy is not
determined by them. All Fed members have a close eye on
inflation expectations against the backdrop of the oil price
trend.
Bernd Weidensteiner
+49 69 136 24527R
CHART 16: Expected interest rate for 3-month funds (USD)
2,0
1,5
1,0
0,5
0,0
current
Mrz 16
Jun 16
Sep 16
Dez 16
Mrz 17
Futures
14.01.16
07.01.16
Commerzbank
TABLE 1: Consensus forecasts Fed funds rate
(higher bound)
Q1 16
Q2 16
Q4 16
Consensus
0.75
0.75
1.25
High
1.0
1.25
2.25
Low
0.25
0.25
0.25
Commerzbank
0.75
1.00
1.25
ECB
According to news agency reports, many ECB Council
members are sceptical about the need for further policy
action in the near term. "Monetary policy is not credible if you
change it every month. I think that in March we'll only start
discussing what measures and when we still need to take," a
policy maker was cited.
ECB’s Villeroy de Galhau stressed that euro zone economic
growth is picking up, though inflation remains too low. “For
the future let us first look at economic data and if needed,
and I stress the ‘if,’ we have the tools and capacity of action”.
ECB’s Vasiliauskas noted that cheap oil has its benefits so
the ECB should shift its focus on core inflation. It is “not worth
speculating about additional action at this moment”, he
stressed.
According to ECB’s Lane, “it is important to say that no door
has been closed. If the data flow over the next months is that
more needs to be done, more can be done”.
The account of the ECB meeting in December revealed that
Council members who were in favour of less policy action in
December suggested limiting policy action to a depo rate cut,
“possibly going beyond the 10 basis point reduction that had
been proposed” (i.e. a depo rate cut was possibly the least
contentious measure).
Dr Michael Schubert
+49 69 136 23700
12
CHART 17: Expected interest rate for 3-month funds (EUR)
0,2
0,1
0,0
-0,1
-0,2
-0,3
-0,4
current
Mrz 16
Jun 16
Futures
14.01.16
Sep 16
07.01.16
Dez 16
Mrz 17
Commerzbank
TABLE 2: Consensus forecasts ECB minimum bid rate
Q1 16
Q2 16
Q4 16
Consensus
0.05
0.05
0.05
High
0.05
0.05
0.05
Low
0.00
0.00
0.00
Commerzbank
0.05
0.05
0.05
Source: Reuters, Bloomberg, Commerzbank Research
15 January 2016
Central Bank Watch (2)
BoE (Bank of England)
The MPC again voted 8-1 to keep rates on hold this month.
Ian McCafferty maintained his vote for a rate hike, citing
upside inflationary pressures, although these fears are less
pronounced than when he started voting for monetary
tightening in August. Whilst sterling has fallen by 6% since
mid-November, there is evidence to suggest that inflationary
pressures have eased of late and the BoE minutes noted that
the slowdown in wage inflation “had been significantly more
pronounced than … anticipated at the time of the November
Inflation Report.” The BoE also highlighted that the economy
had less momentum than previously assumed, thanks to
downward revisions to GDP data, and that the recent decline
in oil prices means that inflation is likely to “increase slightly
more gradually than the path described in … November.”
Indeed, as a result of our revised oil price assumptions, we
expect that headline inflation will hover close to zero until at
least the summer. Together with weaker growth, and any
complications arising from the potential timing of a Brexit
referendum – which could well happen in the window
between June and November – we now expect that the BoE
will only raise interest rates in Q4 (we had previously
expected a move in Q2).
CHART 18: Expected interest rate for 3-month funds (GBP)
1,5
1,0
0,5
0,0
current
Mrz 16
Jun 16
Sep 16
Dez 16
Mrz 17
Futures
14.01.16
07.01.16
Commerzbank
Peter Dixon
+44 20 7475 1808
BoC (Canada)
The ongoing oil price collapse is weighing on the Canadian
economy. This has spurred expectations on markets that –
like last year – this could prompt the BoC to lower its key
interest rate by 25 basis points to 0.25% next week. The CAD
recently devalued further.
However, in a speech on 7 January, governor Poloz did
nothing to support such speculation. He stressed that the
BoC will run an independent monetary policy, especially from
the Fed. On the one hand, he referred to the collapse in oil
prices and related loss of income as seismic factors affecting
the Canadian economy. This, he went on, would trigger
comprehensive and complex adjustments that would take
time. On the other hand, he referred to the significant CAD
devaluation as a major pillar of these adjustments. The
resulting improvement in Canadian companies’ price
competitiveness was already reflected in higher noncommodity exports. At the same time, he stressed that the
weak CAD could result in considerably higher inflation.
Moreover, he reminded that in addition to monetary policy,
fiscal policy or a more flexible labour market could also
support these adjustments. We therefore expect the BoC to
revise down its growth forecasts but to keep its key interest
rate at 0.5%.
CHART 19: Expected interest rate for 3-month funds (CAD)
2,5
2,0
1,5
1,0
0,5
0,0
current
Mrz 16
Futures
14.01.16
Jun 16
Sep 16
07.01.16
Dez 16
Mrz 17
Commerzbank
Elisabeth Andreae
+49 69 136 24052
15 January 2016
13
Rainer Guntermann
Tel. +49 69 136 87506
Bond market preview:
Volatility to remain
Bunds continue to trade in a volatile manner. Amid shaky risk sentiment, the wave of
supply has kept preventing a recovery. Forthcoming impulses also signal high volatility for
next week. However, collapsing oil prices are also keeping inflation expectations under
pressure. And although the ECB sees no further need to act, rate cut speculation should
soon be back on the rise. Ten-year Bund yields may thus be set for another test of the
0.5% mark.
TABLE 3: Weekly outlook for yields and curves
Bunds
US Treasuries
Yield (10 years)
lower
sideways
Curve (2 - 10 years)
flatter
neutral
Source: Commerzbank Research
Outlook for the
Bund future,
18 – 22 January
Economy
→
Inflation
↑
Monetary
policy
→
Trend
→
Supply
↓
Risk aversion
↑
Bund yields continue fluctuating strongly. With risk sentiment shaky, the wave of supply has
prevented a recovery. This week’s government bond supply on the primary market added up to
around €40bn, the largest volume since July 2015, with more than half due to opportunistic
supply from Spain, Belgium, Portugal and the ESM. Initially, the new lows in oil prices did not
provide any further support; in some cases Bund yields even increased amid falling oil prices
(Chart 20) once equity markets recovered again.
The impetus for next week remains mixed, implying that trading will probably remain volatile.
Developments in China and the emerging markets are driving risk appetite overall. While the
wave of supply is approaching its peak, we are looking for two more weeks featuring a combined
issuance volume of around €40bn, without coupon and redemption payments supporting the
demand side. Only in February will we see a considerable relief in the gross issuance volume as
well as €QE-adjusted net flows.
At the same time, ECB speculation will probably return into focus, even with recent comments
from Council members pointing to a wait-and-see stance next week. After all, collapsing oil
prices and inflation expectations will soon force the ECB to lower its inflation forecasts
significantly (see also page 6). Ultimately, this argues for further easing down the road. Markets
currently attach a 50% likelihood to a further depo rate cut by 10 basis points in March and ‘only’
one rate move in the coming twelve months, thus leaving scope for increasing rate cut
speculation. Ten-year Bund yields look set to be in for another test of the 0.5% mark and,
following the wave of supply, risk premiums of peripheral bonds should drop again (Chart 21).
CHART 20: Decoupling of Bunds only temporary in nature
Ten-year Bund yield and Brent future in USD/barrel
0.8
53
48
0.7
43
0.6
0.5
33
Sep-15
Oct-15
Nov-15
Yield (lhs)
14
Yield pick-up of ten-year government bonds versus Bunds, in basis
points
165
155
145
135
125
38
0.4
Aug-15
CHART 21: Peripheral bonds in for a relief move
Dec-15
Jan-16
Brent (rhs)
28
115
105
95
85
Jan-15 Mar-15 May-15
Jul-15
ITA
Sep-15 Nov-15
Jan-16
SPA
15 January 2016
Antje Praefcke
Tel. +49 69 136 43834
FX market preview:
Soft impact of risk aversion
At present, exchange rates are driven less by risk aversion than during the financial
crisis. The shockwaves from the Far East are thus losing much of their steam on their
journey to Europe and America, where regional factors such as inflation data play a more
important role for currencies. With the oil price slump likely to leave its mark on inflation
data, FX markets will hence watch out for any signals from the ECB and the Fed
concerning their future policy action. This points to a volatile sideways movement of
EUR-USD in the week ahead.
TABLE 4: Expected trading ranges for next week
Range
Trend
EUR-USD
1.0650-1.1050
EUR-JPY
126.00-130.50
USD-JPY
116.00-120.00



Range
Trend
EUR-GBP
0.7450-0.7650
GBP-USD
1.4200-1.4600
EUR-CHF
1.0800-1.1000



Source: Commerzbank Research
At present, the conductor of financial markets is China. Markets are dancing to the tune of Asia
Pacific, as concerns over the weak Renminbi (Chart 22) and collapsing Chinese equity markets,
along with the attempts by the local central bank to stabilise Chinese financial markets, are
above all impacting currencies in the Far East. As a safe haven, the yen is up visibly. The
Australian and the New Zealand dollar, on the other hand, have come under downward
pressure, because their countries, as close trading partners, will suffer income losses due to
weakening demand from China. What is interesting though is that heightened risk aversion is
dominating exchange rates to a lesser extent than during the global financial crisis. The
shockwaves from Asia have lost much of their steam by the time they hit Europe and America.
Recently, EUR-USD has thus been trading in a narrow sideways range (Chart 23). Inflows in the
safe-haven franc have been negligible, neither have traditional „risk currencies“ such as the
Norwegian and the Swedish krona come under selling pressure due to rising risk aversion. All
these currencies are dominated by regional factors.
Against this backdrop, next week will be interesting, as US price data is up for release. The
sharp decline in oil prices has already pushed down the inflation rate in the euro area and fuelled
market speculation of further ECB easing. On Thursday, the market will therefore closely monitor
the statements at the ECB press conference for any signals in this respect. But the same may
hold for the Fed in late January, if US inflation data next week were to surprise negatively. Going
by their expectations, markets are still not convinced that the Fed will raise interest rates quickly.
For EUR-USD, this situation suggests that the communications of the ECB and the Fed, on the
one hand, will be crucial. On the other hand, there are enough arguments for or against both
currencies, which points to a volatile sideways trend in EUR-USD.
CHART 22: EUR-USD recently trading in a narrow range
EUR-USD spot, daily data
CHART 23: Renminbi has depreciated strongly recently
USD-CNY and USD-CNH spot, daily data
6.7
1.17
1.15
6.6
1.13
6.5
1.11
6.4
1.09
1.07
1.05
Jun 15
6.3
Sep 15
Aug 15
Okt 15
15 January 2016
Dez 15
Okt 15
Nov 15
USD-CNH
Dez 15
Jan 16
USD-CNY
15
Andreas Hürkamp
Tel. +49 69 136 45925
Equity market preview:
Weak DAX start to 2016 reminiscent of 1987, 1991 and 2008
We still expect a positive DAX year in 2016 despite a miserable start to the year with a
painful loss of 8.3% in the first five trading days. In our view a 1991-type scenario (minus
3% in the first week, plus 13% for the year) is more likely than a 2008-scenario (minus 4%
in first week, minus 40% for the year) thanks to powerful worldwide M1 money growth.
Therefore we expect the DAX to successfully build a bottom in the second half of
January.
TABLE 5: DAX suffers worst start to the year since 1965
Earnings 2016e
Performance (%) since
Index points
Growth (%)
current
Index
31/12
30/09
30/06
current
31/12
DAX 30
9,961
-7.3
3.1
-9.0
831.6
831.1
MDAX
19,588
-5.7
1.6
-0.2
1189
1161
Euro Stoxx 50
3,073
-6.0
-0.9
-10.3
240.4
240.7
S&P 500
1,890
-7.5
-1.6
-8.4
124.4
124.7
P/E 2016e
31/12
current
31/12
4.9
4.8
12.0
12.9
15.5
15.5
16.5
17.9
5.3
5.5
12.8
13.6
6.7
6.8
15.2
16.4
Source: Commerzbank Research, I/B/E/S
What a miserable start to 2016: the DAX slumped 4.3% on its first trading day and 8.3% in its
first five trading days - the worst start to the year since 1965.
•
The second-worst start to the year was in 2008: the DAX fell 3.5% on its first five trading
days, and finally suffered a yearly loss of 40% in 2008.
•
The third-worst start to the year was in 1987: the DAX initially declined 3.5%, and ended the
year down 30%.
•
The fourth-worst start to the year was in 1991: an initial decline of 3.2%, eventually turned
into an annual gain of 13%.
The catalysts of this miserable DAX start to the year were similar to the negative catalysts of
2015: the CNY depreciation; China’s equity market slump and the oil price crash. However, from
China’s consumer in particular we still hope for DAX tailwind during 2016. China’s central bank
has already cut key rates six times. This resulted in Chinese M1 money growth at a 5-year high
of 16.0% (Chart 24). This has already triggered ‘green shoots’ for China’s consumer: house
prices in big cities have risen, retail sales growth has stabilised and auto sales have recovered
from the summer 2015 weakness (Chart 25).
Furthermore, in our view 11% M1 money growth in the euro zone is far too strong for a painful
2008-type scenario – e.g. euro zone PMI indicators remained robust recently. And finally, in our
view 7% M1 money growth in the US is too strong for a painful 2008 scenario – e.g. US labour
market data was very strong last week.
CHART 24: Money growth in China has improved
China: M1 and M2 money growth, y-o-y in %
40
2.4
2.0
20
1.6
10
1.2
2004
2008
M2 money growth
16
China: monthly auto sales in m, monthly and 12-month average
2.8
30
0
2000
CHART 25: Strong recovery of auto sales in China
2012
M1 money growth
0.8
2011
2012
2013
monthly
2014
2015
12M average
15 January 2016
Barbara Lambrecht
Tel. +49 69 136 22295
Commodities market preview:
Oil prices heading further south, metal markets taking a breather
With sanctions on Iran likely to be lifted, more oil is flooding the markets. Although the
additional supply had been imminent for some time, current sentiment ought to send
prices further south. Against this backdrop, the fact that the energy agencies will likely
signal a mid-term reduction in oversupply does not really provide support. Chinese
economic data and data on metal market balances should slightly ease concerns of a
sharp decline in demand on base metal markets.
TABLE 6: Tendencies in important commodities
Change in per cent
14 Jan
1 week
1 month
Tendency Commodity-specific events
1 year Short-term
Brent (USD per barrel)
31.7
-8.9
-19.0
-36.9

OPEC (18), IEA (19)
Copper (USD per tonne)
4365
-3.5
-6.7
-21.3

ILZSG (18), WBMS (20)
Gold (USD / troy ounce)
1091
-1.6
3.0
-11.2

Wheat (EUR per tonne)
167
-1.5
-4.8
-13.0

GMR (21)
What holds for the bull market, i.e. that it feeds itself, probably also applies to the bear market:
oil prices this week slipped below USD 30 per barrel, driven by the removal of sanctions on Iran
looming in the days ahead, although the additional supply from Iran should have been priced in
long ago. In the current environment, the de facto announcement of the decision ought to be
followed by a further decline in prices. The longer-term trend, however, depends on how quickly
Iran boosts its production. We are sceptical whether initial prospects of 1 million barrels per day
can be achieved over the short term. According to recent Iranian sources, the country aims to
raise supply without harming the market. This should be feasible, as demand for OPEC oil
should be higher this year than in 2015. After all, US production looks set to decline sharply,
whereas global oil demand continues to rise strongly (Chart 26). The IEA and the OPEC, which
will be release their supply and demand forecasts in the week ahead, are likely to confirm the
reduction of excess supply during the course of the year. We therefore stick to our forecast of a
price recovery in 2016. Given the further sharp decline, however, we have revised our price
forecast to the downside (see page 5).
Compared with the oil market, the index of the London Metal Exchange (LME) has recorded a
moderate decline of 6% since the start of the year (Chart 27), even though many metal prices
marked new multi-year lows. A breather was the result of very robust import demand from China,
which helped to slightly ease concerns of sharply declining demand in the (by far) largest
market. Economic data due to be released next week should also show that hard data, whilst
pointing to a slowdown, is not signalling a Chinese economic crash. At the same time, the new
market data forthcoming from the International Study Groups and the World Bureau of Metal
Statistics ought to confirm that supply and demand in most base metal markets are more
balanced than in the oil market. All this should put an end to the downtrend of base metal prices
in the week ahead.
CHART 26: Rising demand for OPEC oil
CHART 27: Base metals „outperforming“ oil
Year-over-year change in million barrels per day
3.0
2.5
Index 1 January 2016 = 100, USD per barrel, LME index
Demand and Non OPEC supply: yoy chg in
mm bpd, demand for OPEC oil in mm bpd
2.0
1.5
31.5
105
31.0
100
30.5
95
30.0
90
29.5
85
29.0
80
1.0
0.5
0.0
-0.5
-1.0
2013
Demand, LS
2014
Non OPEC, LS
Source: IEA, Commerzbank Research
15 January 2016
2015
2016
Call on OPEC, RS
01.01. 03.01. 05.01. 07.01. 09.01. 11.01. 13.01.
brent oil pricel
LMEX
Source: LME, Bloomberg, Commerzbank Research
17
Commerzbank forecasts
TABLE 7: Growth and inflation
Real GDP (%)
Inflation rate (%)
2015
2016
2017
2015
2016
2017
USA
Canada
2.5
1.3
2.5
2.3
2.5
2.3
0.1
1.1
1.5
1.7
2.2
2.0
Japan
0.6
1.0
1.0
0.8
0.6
1.8
Euro area
1.5
1.3
1.5
0.0
0.3
1.6
- Germany
1.7
1.3
1.3
0.2
0.7
2.4
- France
1.1
1.0
1.4
0.0
0.2
0.9
- Italy
0.7
1.0
1.0
0.0
0.6
1.1
- Spain
3.2
3.0
2.7
-0.4
0.0
1.3
- Portugal
1.5
1.5
2.1
0.4
0.0
1.4
- Ireland
6.8
4.1
3.8
0.0
0.4
1.5
- Greece
0.0
1.2
2.1
-1.0
0.5
1.5
United Kingdom
2.2
2.2
2.5
0.0
0.5
1.8
Switzerland
0.7
1.2
1.6
-1.1
-0.8
1.2
China
6.8
6.3
6.0
1.4
1.5
2.0
India
6.9
6.8
6.0
4.4
4.0
4.3
Brazil
-3.2
-1.5
1.5
9.2
10.3
9.3
Russia
-3.6
0.3
1.8
15.3
10.9
9.7
World
2.9
3.1
3.3
Q3 16
Q4 16
Q1 17
• The US economy has reduced its imbalances
and seems to continue growing at solid rates.
• Growth in China is decelerating due, among
other things, to high private indebtedness and
overcapacity on the property market.
• 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 experiences a
consumption driven boom; below this glossy
surface, however, its competitiveness is about
to gradually erode.
• 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)
14.01.2016
Q1 16
Q2 16
USA
Federal funds rate
0.50
0.75
1.00
1.00
1.25
1.50
3-months Libor
0.62
0.85
1.05
1.10
1.30
1.55
2 years*
0.92
1.25
1.50
1.60
1.85
2.15
5 years*
1.52
2.00
2.35
2.40
2.55
2.70
10 years*
2.08
2.50
2.80
2.80
3.00
3.20
Spread 10-2 years
117
125
130
120
115
105
Swap-Spread 10 years
-15
-10
-5
-5
-10
-5
Euro area
Minimum bid rate
0.05
0.05
0.05
0.05
0.05
0.05
3-months Euribor
-0.14
-0.25
-0.25
-0.25
-0.25
-0.25
2 years*
-0.39
-0.40
-0.40
-0.40
-0.35
-0.30
5 years*
-0.14
-0.10
-0.05
-0.05
0.05
0.20
10 years*
0.56
0.55
0.70
0.70
0.90
1.10
Spread 10-2 years
95
95
110
110
125
140
Swap-Spread 10 years
37
35
40
45
40
35
Bank Rate
0.50
0.50
0.50
0.50
0.75
1.00
3-months Libor
0.59
0.55
0.60
0.75
1.00
1.25
2 years*
0.50
0.55
0.60
0.80
1.15
1.40
10 years*
1.73
1.85
1.95
2.15
2.40
2.55
• The Fed is likely to continue raising rates, due
to a continuously declining US unemployment
rate and the expectation that wage growth will
gradually rise.
• The Fed’s rate hikes will put moderate upward
pressure on US bond yields. The curve is in for
a flattening in the coming quarters, led by
rising short-end rates.
• In the euro zone, economic growth and core
inflation should stay significantly lower than
forecast by the ECB. Hence, we expect that
the central bank will further loosen its
monetary policy.
• In the medium term, we might see slightly
higher Bund yields, but only due to rising US
interest rates.
• Risk premiums of peripheral government
bonds over Bunds are set to decline further in
the medium term amid ECB bond purchases.
United Kingdom
TABLE 9: Exchange rates (end-of-quarter)
14.01.2016
Q1 16
Q2 16
Q3 16
Q4 16
Q1 17
EUR/USD
1.09
1.06
1.01
1.05
1.03
1.02
USD/JPY
118
123
127
131
132
134
EUR/CHF
1.09
1.06
1.05
1.04
1.03
1.03
EUR/GBP
0.76
0.74
0.72
0.73
0.71
0.69
EUR/SEK
9.28
9.40
9.40
9.40
9.40
9.45
EUR/NOK
9.60
9.70
9.55
9.40
9.30
9.25
EUR/PLN
4.39
4.25
4.25
4.25
4.25
4.25
EUR/HUF
316
320
320
325
325
325
EUR/CZK
27.02
27.00
27.00
27.00
27.00
24.50
AUD/USD
0.70
0.68
0.64
0.66
0.69
0.69
NZD/USD
0.65
0.62
0.59
0.61
0.62
0.64
USD/CAD
USD/CNY
1.44
1.42
1.43
1.40
1.37
1.34
6.59
6.60
6.70
6.80
6.90
6.90
• USD should substantially profit from the quick
Fed interest rate hikes in the first half of 2016.
The Fed will react to this marked USD
appreciation with a rate hike pause which
should result in a correction of the USD.
• The euro is set to be under pressure as a
result of the persistent low inflation in the euro
zone and an ECB that could well loosen its
monetary policy further.
• In China’s new, freer exchange rate system
the country’s macroeconomic weaknesses will
have a bigger impact on the exchange rate.
Therefore we expect CNY to tend to
depreciate over the coming quarters.
Source: Bloomberg. Commerzbank Economic Research; bold change on last week; * Treasuries, Bunds, Gilts, JGBs
18
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15 January 2016

China`s heavily indebted corporate sector, Week in Focus, 15

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