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Market & Supply Watch - December 2016

The EBV Analysis of the Market Situation

The economic data of recent weeks suggest that unlike the US, China and the euro zone are faring better than expected. However, we have adopted a more cautious line. In fact, growth in China has probably continued to slow down, and the initial estimate of euro zone GDP is likely to have exaggerated the underlying pace of the growth. We expect the ECB to continue buying bonds across the board and to opt for more quantitative easing by the end of the year. The US economy, though, is doing far better although we have cut our 2016 growth forecast to 1.8 %, and now envisage only two further rate hikes by end-2017.

Energy agencies should further dampen the still-high optimism of oil market players by indicating significant oversupply for the first half of the year. On account of the mild winter and the rather modest global economic upswing, they may even revise downwards global oil demand in the current year. And the fact that the psychologically important 50 USD/barrel mark has not been reached should make market participants more cautious. The consolidation on the oil market is therefore set to continue next week.

In contrast, positive sentiment should prevail on the gold market; the World Gold Council is likely to confirm that the latest price rally on the gold market was due in the main to high investment demand in western industrial countries, while Asian demand is weakening.

After the Fed’s rate decision and the current employment report, fresh impetus for USD exchange rates are unlikely to materialise. As long as the Fed does not give a more optimistic outlook, fueling interest rate speculation, the currency pairs will be dominated by the outlooks of the other central banks.

Source: Commerzbank AG - Economic Research

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