Julius Baer: sobre Italia, el empleo en USA, los bonos europeos y el petróleo

Redacción - Lunes, 05 de Diciembre

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ECONOMICS Thought for the day – Italian referendum

 

Investors got some routine with digesting political outcomes this year. The typical three waves of reaction – adjusting positioning, monitoring contagion and pre-empting policy response – should also hold true for the Italian referendum. The re-positioning should be rather muted though as a ‘no’ was widely expected. This is also what currency markets are telling us, with an almost unchanged euro against the USD. Contagion will be seen over the day, when Italian banks are traded on stock and bond markets – again we expect rather muted reactions. And finally policy response should take some time for Italy, but for monetary policy the ECB could come up with a plan at the regular monetary update this week. 

 

Christian Gattiker, Chief Strategist and Head Research, Julius Baer

 

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After Italy - holiday season ahead

 

After letting the Italian referendum decision sink in, investors will try to find a way to enter the December/year-end lull. On the way there, there are only a few macro data points with services purchasing managers’ indices (PMIs), US productivity data, durable goods orders and the regular ECB announcement. And whomever the Donald pulls out of his hat to complete his government-team casting show before the holidays. 

Finding a way into the year-end lull is the challenge of the week. Only a few macro data and possibly US government nominations are in the way as soon as the Italian decision is digested. 

 

Christian Gattiker,  Chief Strategist and Head Research, Julius Baer

 

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US employment report: Good enough for the coming rate hike

 

Friday’s US employment report for November cleared the bar for a coming rate hike by the Federal Reserve on 14 December. Job growth remained robust with 178,000 newly paid positions created in the past month. The unemployment rate declined to a new low of 4.6%. Even though the relatively large drop from 4.9% previously is partly due to a ticking down of the participation rate, which means a lower share of people being considered to be in the labour market, it is also a sign of a further recovery of the employment situation. On the wage front, such a development could not be observed, with average hourly wage growth ticking down to 2.5% y/y. We expect this still somewhat low wage growth to pick up more rapidly during the course of next year.

The US labour market has recovered to a stage healthy enough to support solid private consumption and for the Federal Reserve to go on with their expected rate hike on 14 December, which is now fully priced in the USD. The expected next rate hike in H1 2017, together with a likely more expansionary fiscal policy under President-elect Trump, should guarantee more USD strength in Q1 2017.

 

Susan Joho, Economist, Julius Baer

 

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FIXED INCOME

 

European government bonds: With Italy’s referendum behind, all eyes on the ECB

 

The Italian referendum on constitutional changes produced the expected rejection, mainly in the economically poorer Southern regions. Unlike the UK referendum on EU membership or the US presidential election, this outcome has been widely anticipated, and market reaction this morning was modest. It is more interesting to see how the European Central Bank will be taking the referendum into consideration. With the constitutional chances rejected mainly in regions where the economy is lacklustre and unemployment is high, the referendum must be seen as another piece of evidence how urgent it is to stimulate the eurozone economy, and that the ECB must do everything it can to provide maximum support. Technical boundaries, on the other hand, are limiting the scope of support it can deliver, and we all know that fiscal stimulus would be more adequate to improve infrastructure and productivity alike. At the moment, it appears that the former argument seems to overwhelm. The bare minimum the market is discounting this morning is thus an extension of the EUR 80 billion per month asset-purchasing programme for at least another six months.

We still see some room for disappointment this week and remain cautious on EUR core bonds, even after the recent correction. In the EUR segment, we still like segments the ECB has not distorted yet, such as deeply subordinated bonds of banks with solid fundamentals, or convertible debt.

 

Markus Allenspach, Head Fixed Income Research, Julius Baer

 

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COMMODITIES

 

Oil: Prices to remain in the low 50ies

 

Oil prices settled in the low USD 50ies per barrel following the Organization of Petroleum Exporting Countries (OPEC) decision last week to cut supplies by an unexpectedly high 1.2 million barrels per day. Given the many buts and ifs we updated our supply and demand balances, applying a discount to the headline figure. The oil market’s surplus is set to persist but no longer increase over the coming months. Among the caveats of the OPEC deal is the fact that the group recently raised production to oversupplying levels and that the cuts thus partially undo the latest supply boost. The oil market is set to remain in limbo in the near terms, left in the dark until the production figures reported with delay will either confirm or dismiss compliance to agreed production quotas. Taking further into account the bullish market mood we raise our 3-month price target to USD 50 per barrel and the 12-month price target to USD 47.5 per barrel, both from USD 45 per barrel. Oil prices in the 50ies add further fuel to the reviving US shale boom which will ultimately offset the intended market rebalancing. Thus, we remain conformable with our neutral view and see oil prices trading at the upper end of the recent trading range. The OPEC deal supports our recommendations to own US energy infrastructure and the leading shale companies.

Oil prices settled in the low USD 50s per barrel following last week’s OPEC deal. Seeing the market’s surplus no longer increasing in the near term, and seeing the bullish mood persisting we raise our near term price target to USD 50 per barrel maintaining a neutral view on prices. Shale companies and US infrastructure are the main beneficiaries in today’s environment.

 

Norbert Rücker, Head Commodities Research, Julius Baer

 

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