Market & Supply Watch - November 2015
The EBV Analysis of the Market Situation
In China’s new, more flexible exchange rate system, economic problems have a greater impact on the yuan’s exchange rate. And there are indeed many problems: The excess supply of unsold properties is depressing house prices and economic growth. Chinese companies are vulnerable anyway, because they have massively increased their debt in recent years. The Chinese government will probably fall short of its 2015 growth target of 7%. And economic growth should continue to decline in 2016.
Unlike China, the US has fortunately largely reduced its economic imbalances. For this reason economic growth in the US will probably increase. If the global economy continues growing at a moderate pace of 3% despite slower growth in China, this is owed mainly to the US.
The Euro Zone economy is back on a growth trajectory (2015 forecast: 1.2%), but keeps lagging its US peer (forecast: 2.3%). While the Euro’s past depreciation has recently triggered a somewhat quicker rise in goods prices, many observers overlook the fact that the lower oil price also results in lower prices of non-energy goods and services which will dampen core inflation. We stick to our view that the ECB will continue with its bond purchases beyond September 2016.
Despite a decline in June, the trend in order intake in the German industry has recently pointed clearly upwards. Foreign orders in particular have increased. The main driver for this rise were orders from the Euro Zone, but orders from outside the monetary union also rose by 3½%. This shows that the weakness in the emerging markets has not had an effect yet.
Due to China’s problems, the markets are concerned about global economic growth. This has pushed equity prices and government bond yields down. However, we expect that declining growth in the emerging markets will be largely offset by stronger growth in the industrialised countries. The DAX should therefore recover medium-term – especially since the ECB is likely to further relax its monetary policy in case of doubt. The divergence between the ECB and Fed policies is the main reason why EUR-USD should soon resume its