Julius Baer: Fed, bonos gubernamentales europeos y petróleo

Redacción - Lunes, 09 de Enero

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ECONOMICS Higher wage growth supports more hawkish Fed Last week’s US labour market report disappointed when looking at how many jobs had been added in December last year. Instead of the expected 175,000, only 156,000 new jobs had been created. However, revisions of past numbers had been positive and the level of job additions justifies describing the US labour market as robust and consistent with growth above 2% in the US. Average hourly earnings had been reported at 2.9%, slightly more than expected and reached its highest level in this expansion cycle. This is a clear confirmation that the US labour market is getting tighter and argues for a more hawkish Fed going forward. We feel comfortable to expect three rate hikes this year, which is more than Fed funds future pricing currently implies. More rate hikes mean also that some upside potential is left for the US dollar. We stick to our 3-month EUR/USD forecast of 1.03 and USD/JPY of 1.21 and expect US Treasuries yields to start moving higher again in the coming months. 

Stronger US wage dynamics argue for more-than-expected interest-rate hikes this year supporting the US dollar and driving yields higher again in the coming months. 

FIXED INCOME

 

European government bonds: Solid data drives yields up slightly

Incoming eurozone economic data points to an acceleration of growth. The economic confidence indicator collected by the EU Commission rose to 107.8 in December, up from 106.6 in November, and the highest level since March 2011. Retail sales were up 2.3% in the year to December, compared to an upwardly revised 3.0% increase in October. Citigroup’s economic surprise index for the eurozone, which measures the difference between actual data and market expectations, rose to 71.1, the highest level since February 2013. At the same time, inflation expectations are creeping higher, in lockstep with the oil price. As a result, the criticism on the European Central Bank’s monetary policy is becoming louder. As a result, core government bond yields are moving higher again, with the benchmark German 10-year government bond yield at 0.3% again this morning, while the equivalent French yield is 0.84% and Italy pays 1.96%, respectively.

In the EUR segment, we expect the correction of bond yields to continue as the market will increasingly focus on the post-quantitative easing conditions.

Markus Allenspach, Head Fixed Income Research, Julius Baer

 

 

COMMODITIES

Oil: Will the supply cuts become a chicken game?

Oil’s push above USD 58 per barrel on the first trading day of the year seemingly only was a temporary burst of energy. The market’s focus is on quota compliance as the oil producers must now walk the talk of supply cuts. We remain sceptical that the supply deal will have a material impact, swiftly erase surplus supplies and provide lasting support to prices. The deal partially undoes the overproduction by the Middle East and Russia which had ramped volumes towards the end of the year. Quota compliance historically was poor and this time should not be different, not least as significant suppliers with a near term growth agenda such as Libya or Nigeria are exempt. While Saudi Arabia already announced lower output volumes, Libya’s export resumptions, Iran’s oil storage clearance sales and the ambiguous statements from Russian oil companies sow the seeds for a chicken game. Game theory economists likely are monitoring the oil market more closely these days. Last but not least, the reviving shale boom will partially offset the oil producers’ efforts. Friday’s data not only showed a further uptick active drilling rigs but also job increases in the oil and gas sector. The bullish positioning by hedge funds in the futures market suggests that prices reflect a fair amount of optimism and are partially at risk from profit taking.

Oil is in focus with the producers now acting on the pledged supply cuts. Quota compliance is game theory and the historic odds are poor. We remain sceptical the deal will swiftly eras surplus supplies.

Norbert Ruecker, Head Macro & Commodity Research, Julius Baer

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