Julius Baer: sobre el BCE, los bonos USA y el aluminio

Redacción - Viernes, 28 de Abril

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FIXED INCOME Europe: ECB unimpressed by strong economic data The European Central Bank (ECB) continues to detect downside risks and remains committed to cutting rates even lower if needed. This dovish message drove German government bond yields slightly lower yesterday, with the yield of the benchmark 10-year Bund declining from 0.35% to 0.3%.The ECB president acknowledged the upward trend of economic indicators – the EU economic sentiment index just reached a 10-year high – but still defends his cautious stance with reference to the downside risks of the eurozone economy. The economic sentiment index rose to 109.6 in April from 108 in March and 103.9 in April last year. It surpassed the previous cycle high of 108.3 in February 2011. It was 111.7 in June 2007. It is noteworthy that the ECB had raised interest rates both in 2011 and in 2007 with the index at this level, not defended an ultra-loose monetary stance. ECB President Draghi made reference to the disinflationary trend in the eurozone. We should get the latest data on consumer prices later this morning. Following the rebound of inflation rates in Germany to 2.0% and Spain to 2.6% in April, respectively, the market is expecting the April rate for the eurozone to reach 1.8% to 1.9%. A reading of 2.0% would be seen as negative for the bond market.

 

The normalisation of the ECB’s monetary policy remains a question of time, not of whether it will happen at all. We thus maintain our call to invest in segments the ECB has distorted least, such as subordinated bank debt. The latter will benefit from the strength of the EU economy, which is apparent in the above-mentioned indicators.

 

Markus Allenspach, Head Fixed Income Research, Julius Baer

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US government bonds: Shutdown risk overshadowed by North Korea rhetoric 

 

The world is only talking about the US stance towards North Korea, but there is a budget deadline looming in the background. The US Congress has to reach an agreement to fund the US Federal Government through September, the end of the 2017 fiscal year, by midnight. Indeed, the existing Continuing Resolution (CR) funding discretionary programmes expire today, 28 April 2017. If US President Trump does not want to mark his first 100 days in office – tomorrow, 29 April 2017 – with a limited government shutdown, he has no time to waste to engineer a last-minute budget compromise. We will also see the first estimate for the real growth rate in Q1, which is expected at 1.0% due to the effects of the bad weather in March and a correction in private consumption. More actual indicators, such as the Chicago Purchasing Managers’ Index for April and the University of Michigan’s consumer sentiment indices, are expected to herald an acceleration of growth towards its trend rate in the current quarter. We thus maintain our call for two more rate hikes in 2017.

 

We still believe that the US Administration cannot afford another failure and that some form of compromise will be found to fend off a shutdown on Monday, 1 May. Therefore, we believe that the latest gains in US government debt are unsustainable and prefer credit risk, in particular US senior loan funds.

 

Markus Allenspach, Head Fixed Income Research, Julius Baer

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COMMODITIES

 

Aluminium: Trump’s investigation weighs on prices 

 

Despite being a comparably small industry in the United States, aluminium has moved into the focus of US politics. President Trump ordered a security investigation into imports of aluminium as domestic supplies might be insufficient to meet the demand of the defense industry. Over the past 10 years, US aluminium production has declined down from 2.2 million tonnes to 0.8 million tonnes as outdated technologies weighed on international competitiveness. The aluminium market’s reaction to the news was negative with prices down more than 2%, most likely reflecting concerns of increasing global oversupply should the United States increase domestic production while restricting imports. Production from lower-cost countries such as China or Russia would not disappear from the market but weigh on prices outside the United States. Independent of the investigation, we believe aluminium prices rose to levels which are not justified by the fundamental supply and demand backdrop. Market sentiment was fuelled by hopes that China’s fight against pollution would lead to supply curtailments. During the first quarter, however, Chinese aluminium production is up 14% and inventories are building. Supply curtailments have only been ordered for the winter heating season, which is still far away. We remain cautious on aluminium and expect prices to revert towards USD 1,750 USD per tonne.

 

The news of the United States’ investigation into its aluminium imports caused renewed concerns about global oversupply, putting pressure on prices. We see the aluminium market well supplied and believe prices rose to levels which are not justified by the fundamental backdrop. Hence, we remain cautious.

 

Carsten Menke, Commodities Research Analyst, Julius Baer

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