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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
joerg.kraemer@commerzbank.com
For important disclosure information please see page 19.
research.commerzbank.com / Bloomberg: CBKR / Research APP available
Editor:
Peter Dixon
+44 20 7475 4806
peter.dixon@commerzbank.com
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
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