Market views for 2017 - page 3
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On EUR/USD: Momentum strongly in favour of the USD - anticipate towards parity
The latest from ANZ 'FX Insight' today
Fed’s Lacker: More than 3 Rate Hikes Needed in 2017
During a panel discussion on Friday, Richmond Fed President Lacker stated that an adjustment is needed towards higher interest rates. According to Lacker, the Fed would probably need to raise rates more than three times during 2017.
He also commented that there is increased uncertainty for the economy due to the election outcome and that there is some prospect that policies will be put in place to promote economic growth through a fiscal stimulus.
Lacker is traditionally on the hawkish end of the FOMC spectrum and has consistently called for higher rates during the past year.
He will not be a voting member until 2018, but he will continue to make projections for the Federal Funds rate in the ‘dot plots’ with all regional Fed Presidents making these projections.
Lacker’s hawkish plots for 2017 helped pull the median Fed Funds rate projection higher in the December forecasts, which was a factor in triggering strong dollar gains.
The overall FOMC 2017 voting composition is relatively dovish with the Chicago and Minneapolis banks having a vote during the year and these two have consistently been the most dovish members among the regional Presidents.
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Euro To Dollar: ING Forecasts EUR USD Exchange Rate Parity Just A Matter Of Time
The Euro US Dollar exchange rate struggled to emerge from its 2016 lows ahead of the weekend as American markets opened and USD strength resumed.
EUR/USD is unlikely to recover to the level of 1.05 by the end of the week, and the outlook for next week remains bearish due to a lack of strong upside potential in upcoming Eurozone ecostats.
However, as January and the beginning of the Trump Presidency news, the US Dollar could become jittery if USD traders begin to sense more uncertainty in the future of the US economy.
Euro Pound exchange rate to Target 0.79 say Morgan Stanley
EUR/GBP is also likely to tumble in the near-term according to leading FX institutional forecasts by Morgan Stanley:
"We think that a good way to express EUR weakness after dovish ECB meeting is to sell EUR/GBP. GBP has been helped by the UK government showing increasing sensitivities to avoid a 'cliff edge'.
"David Davies, the Brexit secretary, is now even suggesting that he is amenable to a transitional agreement after the UK formally leaves the EU."
"These comments together with those from PM May and chancellor Hammond indicate that the Brexit premium could come down, taking GBP away from an undervalued level."
Over the last few months EUR USD has been on a serious downtrend, will the Euro US Dollar exchange rate fall to parity in 2017?
Concerns relating to the rise of populism in Europe, underperforming economic data, the potential impact of Brexit and the Federal Reserve’s long-term policy plans have but the Euro US Dollar exchange rate under serious strain.
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2017 Forecast: Looking For 20% From S&P 500 Next Year
The 2017 forecast is for 20%, and it is primarily earnings based.
Here is the last 5 years of S&P 500 earnings estimates and y/y actual growth:
The bullishness for 2017 is partly due to the Republican Congress and President, and the bullish fiscal policies being discussed, but just watching the numbers in 2016, the S&P 500 earnings estimate of $132.76 and growth of 12% was in the works well before the Trump presidency and the surprise Republican sweep on November 8th, 2016.
Where to for the yen in 2017? 2016's top forecasters are a long way apart!
JPMorgan's Tohru Sasaki & Nomura's Yunosuke Ikeda are on top of the analyst rankings this year
Goldman Sachs' 2017 Investment Outlook: 3 key questions & 4 emerging transitions
From Goldman Sachs Asset management - their investment outlook for next year
USD: A Very Different Starting Point In 2017; 6 Valuation Constraints
The starting point for the USD in 2017 is very different from where we were when the Fed began tapering bond purchases heading into 2014.
Our long-term, fair value model, BNP Paribas FEER, has signalled that the USD has been in expensive territory since early 2015, and wewould expect elevated USD levels to generate increasing friction as we move through 2017. These could include:
Fed concern. Our forecasts imply a peak in the y/y pace of appreciation in the Fed’s broad TWI, around 9%, in Q1 2017. This is a substantial headwind, but considerably less than the nearly 16% y/y peak seen following the CNY devaluation in August 2015, which contributed to delaying and ultimately derailing Fed tightening plans. A faster pace of USD gains could slow the Fed and prevent the market from pricing in too much Fed tightening.
Treasury concern. The Trump administration could become alarmed at export implications of a strong USD and object if the dollar moves too quickly. Financial markets have relied on the simple “strong dollar policy” formulation of the past three administrations as a pledge not to talk down the dollar; but, this policy could be in jeopardy, particularly if the USD rises too far too fast.
Other central bank reaction. Our forecasts assume the ECB will begin to signal a tapering of its asset purchase program by late 2017, and EUR weakness in line with our parity target will likely support this. If the EUR were to move too quickly, the ECB might be inclined to scale back its program sooner. Similarly, while we think the BoJ’s 0% target for 10-year JGB yields will remain unchanged, it is possible that too rapid a pace of USDJPY gains could lead to the central bank allowing yields to move higher.
China concerns. The CNY is likely to weaken vs the USD, in line with the PBOC’s basket-targeting policy framework. While markets have taken this process in stride so far in Q4, a too-rapid pace of USD gains could lead to concerns about USDCNY levels, with negative implications for the risk environment which, if severe, could limit Fed appetite for tightening.
Commodity prices. While commodity prices have held up well so far in Q4, a too-rapid pace of USD gains could undermine the USD price of key commodities, with negative implications for the risk environment, inflation expectations and the Fed’s willingness to tighten policy.
M&A activity. US corporates may increasingly look to acquire overseas companies as the USD gains, helping to cap to the currency.
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A series of videos from Goldman Sachs on 2017 outlooks
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The life of EURUSD in 2017
Danske see EURUSD bottoming at 1.0200 in their 1 month forecast.
"In the short term, on the one hand there will be downward pressure on the US monetary base from the higher federal funds target and from the impact of new banking regulation with US banks set to be required to have an LCR of 100% by 1 January 2017. On the other hand, deposits on the US treasury account may fall at the beginning of next year after a resuspension of the debt ceiling, which will tend to increase the monetary base. Overall, this is likely to be marginally positive for USD and weigh on USD FX forward points vis- à-vis EUR and the Scandinavian currencies on top of the impact of the repricing of the path of Federal Reserve rate hikes, e.g. keeping the 3M EUR/USD basis spread around the present 70-80bp, and thus maintaining a significant negative carry on short USD positions."
In 12m they see the euro at 1.1200.
"Implementation of new regulation will continue in 2017, which is likely to continue to put downward pressure on the US monetary base. Additional rate hikes from the Federal Reserve in 2017 (we forecast a 25bp hike in June and December) are likely to be less of a strain on the monetary base than before and after the rate hike in December 2015, as the hiking cycle seems better aligned now with a recovery in the natural rate of interest. If the Federal Reserve attempts to push rates higher at a faster pace, it may become an issue though. This will maintain a higher negative carry on short USD positions vis-à-vis EUR and Scandinavian currencies than can be explained by the spread in interest rates, e.g. the 3M EUR/USD basis spread should stay around the present 70-80bp. Over the medium term, we look for the USD to fall back on valuation and the beginning of a correction of the large US current account deficit. As implementation of new regulation moves closer to the end, it should furthermore be less of a supportive factor for the USD. "
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2017 Should Be Good For USD
As the holidays draw near, we have seen very little consistency in the performance of the U.S. dollar. The greenback lost value Wednesday versus the euro, Japanese yen and Swiss franc but strengthened against sterling and the commodity currencies. Even with these back-and-forth movements, we are still seeing more profit taking than new positioning in the dollar. Of course this isn’t a surprise as overstretched moves ahead of a major holiday invites liquidation. Better-than-expected U.S. existing home sales and the London close drew some buying interest but as the North American session progressed, profit taking resumed. We could see one final jolt of volatility with Thursday’s revisions to third-quarter GDP, initial jobless claims, durable goods, personal income and spending reports scheduled for release. After that, markets will be in full holiday mode until Tuesday when we could see some additional action before year end.
Short-term price action aside, with the Federal Reserve looking to raise interest rates three times next year, 2017 should be a good year for the U.S. dollar unless the strong dollar kills corporate earnings, Trump tantrums overshadow Trump stimulus and the Fed raises interest rates two instead of three times next year. Time and again, we’ve heard U.S. companies attribute earning misses to currency translations. A strong currency hurts corporate earnings by reducing the value of foreign profits and making U.S. exports less competitive on the global market. According to Factset data, 30% of U.S.-based S&P 500 firms draw over 50% of their revenue from outside the U.S. and the value of this revenue is now less in U.S. dollar terms. We were having this same conversation this time last year when USD/JPY was trading above 120. The strong dollar was also a big problem then and in less than 6 months, it sank down to 100. Considering that there are no less than 10 reasons why the dollar is a headache -- list below -- we hope you understand why it would be dangerous to expect an uninhibited rally in the dollar next year, especially since it’s a crowded view. At the same time, if there are any delays to Donald Trump’s fiscal stimulus program, or there are signs that it may not be as aggressive as he promised, the rally in stocks and the dollar could be unwound. Any of this could lead to less tightening from the Federal Reserve next year. Of course if none of this becomes an issue, it should be smooth sailing to 120 for USD/JPY -- a level that we still expect to reach some time in the coming year.
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