---
title: "Markets and Trends 2016: A relay race"
url: https://www.helaba.com/en/markets-and-trends-2016-relay-race
type: dd_research
language: en
updated: 2026-09-28
keywords: Kapitalmärkte im Überblick, Kapitalmarktausblick, Markets and Trends
---

# Markets and Trends 2016: A relay race

HELABA RESEARCH · DECE MB E R 2 01 5 · © H E L A B A 1 MARKETS AND TRENDS 2016 A RELAY RACE: IT’S THE HANDOFF THAT COUNTS Helaba Research DECEMBER 2015 MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 2 Publisher: Helaba Landesbank Hessen-Thüringen Research Dr. Gertrud R. Traud, Chief Economist/Head of Research MAIN TOWER Neue Mainzer Strasse 52-58, 60311 Frankfurt am Main phone: +49 69 9132-2024, fax: +49 69 9132-2244 Editors: Dr. Stefan Mitropoulos, Barbara Bahadori Authors: Dr. Gertrud R. Traud Christian Apelt Barbara Bahadori Ulrike Bischoff Marion Dezenter Patrick Franke Dr. Johannes Jander Ulf Krauss Dr. Stefan Mitropoulos Dr. Stefan Mütze Heinrich Peters Ulrich Rathfelder Stefan Rausch Markus Reinwand Claudia Windt Copy deadline: 19 November 2015 This publication was very carefully researched and prepared. However, it contains anal- yses and forecasts regarding current and future market conditions that are for informa- tional purposes only. The data is based on sources that we consider reliable, though we cannot assume any responsibility for the sources being accurate, complete, and up-to- date. All statements in this publication are for informational purposes. They must not be taken as an offer or recommendation for investment decisions. Photo credits: Gladys Chai von der Laage (cover picture), Diego Barbieri, Shutterstock HELABA RESEARCH · DECE MB E R 2 01 5 · © H E L A B A 3 1 Baseline scenario: Relay race (70 %) Dear readers, Like every year, a motif runs like a thread through our economic and financial mar- ket outlook. This time we are being sporty, because in 2016 the Games of the XXXI Olympiad will take place. New records will be set in the contests – but there will be disappointments and defeats, too. For the financial market scenarios in 2016 we have chosen three traditional track and field events from the various Olympic disciplines: the relay race as well as the steeplechase and sprint (for alternative scenarios see page 10). They differ in terms of the course and speed as well as in the risk of reaching the finishing line without falling or being disqualified. Our baseline scenario for the annual outlook is the “relay race”: optimum per- formance is only possible if there is a perfect interplay between speed and dexterity. Therefore, for the teams of the industrialised and emerging economies “it’s the handoff that counts”. However, no economy has such a perfect level of train- ing. Thus, although momentum in the global economy will pick up in 2016, it will remain at a moderate pace in most coun- tries. We assign a 70 % probability to this scenario. Economic growth: consumption-driven The global economy should expand at a rate of 3.3 %, slightly more strongly than in the previous year (2.9 %). No pro- nounced cyclical pattern can be dis- cerned, which is a result of subdued in- dustrial activity that will not live up to its role as a pacesetter. This will apply equal- ly to countries where industry has a large share of the economy, such as Germany, or to those with a small share like the United States. Industrialised countries, whose consumers will continue to drive their economies forward, will be the prima- ry source of economic growth in 2016. The US will set the pace and economic growth there will rise to 3 %, after 2.5 % this year – in other words, considerably above the trend of 2 %. This acceleration will also be helped by fiscal policy, which will hardly act as a brake any longer. Consumption will have a good run with growth of 3 % as the labour market has reached the threshold of full employment. Weaknesses in the US team will be the low level of industrial activity as well as sluggish demand for US exports. MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 4 Given its capabilities, the euro area should have a good run in 2016. With growth in gross domestic product of 1.6 %, it will even manage to slightly exceed its potential. Spain and Ireland will continue running at an above-average pace, but Italy and France, the hitherto weak heavyweights, will finally join the race and their growth rates should man- age to almost keep up with the rest. Frantic German consumption Germany should be on par with the euro area with growth of 1.7 %. The most im- portant factor driving the German econo- my will remain consumption, which will rise by around 2 %. Thus, collectively bargained wages in the overall economy will see a further 2 % increase and em- ployment will expand by approximately 0.5 % in 2016. However, no impetus can be expected to come from the savings rate; it should remain practically un- changed. In 2015, the fall in oil prices provided a very strong boost to consum- ers. This effect is likely to be somewhat weaker in 2016. The inflation rate will average 1.2 % over the year. In addition, the large influx of people to Germany will have a positive effect on consumer spend- ing. Investment in machinery and equipment is unsatisfactory. Capacity utilisation is just about average and the difficult economic situation in many emerging market coun- tries as well as weak global capital for- mation mean that, for the time being, no surge in demand for German industrial products can be expected. Pressure on earnings will remain. While unit labour costs in manufacturing industry will rise, producer prices will fall. They should stabilise over the course of 2016, how- ever. Construction activity will act as a growth driver. Demand for apartments in cities and their environs will be high. However, companies will hold back on investing in commercial properties and the capital expenditure drive announced by the public sector has, in the figures at least, not materialised yet. Momentum should be somewhat stronger in 2016. The German export industry – a classic stimulator of economic activity – will only fulfil its task to an insufficient degree. Companies will benefit from the weak external value of the euro, though devel- opments on world markets will be ambiva- lent. China is adapting its growth model towards favouring consumption, which will tend to have a negative effect on German industry; important emerging countries will only just gradually emerge from their crisis. Positive impulses will come from the US and, in particular, from a recover- ing euro area. Overall, the strongly com- petitive German industrial sector will be able to increase its exports. Nonetheless, a similarly dynamic growth in imports will result in no real growth in the trade sur- plus. MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 5 Emerging markets to stabilise For all oil-importing countries, the struc- turally low oil price will be a significant competitive advantage. As a direct effect, on the one hand real incomes of consum- ers will rise and, on the other, input costs for companies will fall, which will have a positive impact on profits and capital expenditure. Apart from the EU and Ger- many, the largest beneficiaries will also include China and India. Commodity- exporting emerging countries should not see any further decline in 2016. Brazil and Russia will manage to avoid a further deterioration of their situations and will only see a slight contraction. The sharp devaluation of their currencies will have a supportive effect. Inflation: hardly any price pressure For industrialised nations, the connection between the oil price and the rate of infla- tion remains unbroken, while a tight labour market – such as in the USA or Germany – hardly has an inflationary effect any more. The inflation rate will remain mod- erate, both in the United States as well as in the euro area. Although there will be a jump from a basis effect at the turn of the year, apart from that there is not much discernable price pressure. In the US, we expect the inflation rate to average 1.5 % over the year and 0.9 % in the euro area. Monetary policy: divergent paths In many developed economies there will be no reduction in the degree of monetary expansion despite the fact that many have reached their growth potential. The Euro- pean Central Bank (ECB) would definite- ly like to run another lap in the 2016 relay race. It will intensify its expansionary monetary policy even further. There will be a clear lack of faith in a self-sustaining recovery. The US Federal Reserve, on the other hand, will be ready to hand off the baton and raise interest rates, with the Bank of England effectively following suit in their slipstream. In any case, monetary policy will remain loose in both countries. That is why the maxim for bond markets is: in view of the low starting level and the cautious approach by central banks, real interest rates will stay low across the globe. Exchange rates under the spell of monetary policy On the foreign exchange markets, the direction of monetary policy will funda- mentally support the US dollar. However, the divergent stance of monetary policy has been an issue on the markets for some time with the result that it is priced in to a substantial degree. After all, the eu- ro/dollar rate fell temporarily to a 12-year low. Anyway, it has always been the case that the US dollar appreciated in the run- up to previous cycles of interest rate rises and then lost part of its gains again. To- day, the US dollar is already significantly overvalued in terms of purchasing power parities or real exchange rate indices. The ECB and the Fed will lean against any more extreme moves, at least verbally or even by using monetary policy instru- ments, not least to support their respec- tive export industries. We expect that the euro/dollar will move more or less side- ways in 2016 and should stand at around 1.05 by the end of the year. Due to the expansionary policy by the ECB, the euro/Swiss franc rate will see a slight recovery, at best. The Swiss Na- tional Bank should be able to prevent any renewed appreciation. The British pound should rise somewhat against the euro in 2016 as a result of the Bank of England’s interest rate hike. MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 6 Equities: doomed to success In 2016, equities will move within a tense environment of high valuation and a lack of alternative investment opportunities. This will not be a continuous process, however. In fact, it can be expected that volatility will increase even further in view of the maturity of the equity cycle. Low commodity prices, the likelihood of continued euro weakness as well as a stabilisation in emerging markets will play into the hands of German equities. Alt- hough the growth rates of corporate prof- its will not be significantly higher than their US counterparts across the leading indi- ces, in contrast to the US it is likely that there will be a further noticeable rise in the valuation of euro-denominated stocks in light of an expansion in the ECB’s pur- chase programme. It is possible that the DAX will temporarily reach levels well above the 12,000 mark, although after that it will probably quickly run out of steam. Just as in 2015, there- fore, a great deal of tactical skill will be called for in terms of equity investments. Price/earnings ratio ranges, from which a fair value for the DAX of between 9,000 and 12,000 points can be derived, provide particularly good guidance. Any signifi- cantly higher levels should be used to reduce equity allocation in an anti-cyclical manner and any possible dips should be used to increase it (DAX range: 9,000 to 12,500). Interest rates: 10-year Bunds at 1 % If the Fed and the ECB make opposite interest rate decisions, this should deter- mine yields for a long time to come: The Fed’s interest rate hikes will herald a rougher climate on the US bond market. We expect a rise in 10-year US Treasury yields by the end of 2016 to around 3 %. In contrast, the ECB appears resolute in wanting to give a massive boost to the economy and inflation. They have sig- nalled an upcoming expansion in their purchase programmes and a reduction in the deposit facility rate. The consequences will be persistent, negative interest rates on the euro mon- ey market, on short-term German gov- ernment bonds and Pfandbriefe. Yields on shorter-term maturities will probably not manage to stay out of negative territo- ry in 2016 in view of underlying hopes of interest rate cuts. On the other hand, longer maturities will likely lead a life of their own. The influence of the ECB will be limited, despite its asset purchase pro- grammes, as the strong rise in yield showed in the spring of 2015. Moreover, the attractiveness of euro-denominated bonds is suffering from the considerably higher interest rates on US fixed-income securities. For international investors, concerns about protracted euro weakness could lead to purchasing restraint. The fundamental interest of the European Central Bank in a steeper yield curve in the medium term also militates in favour of higher bond yields. Since the middle of 2015, the spread between 10- and 2-year Bunds has been below one percentage point, which is historically extremely low in light of the massive money policy measures undertaken. If the curve re- mained relatively flat, questions would arise regarding the possibilities the ECB has to influence the situation using mone- tary policy instruments. The lack of in- vestment alternatives for institutional investors would intensify further. The situation would at least somewhat ease off in relation to the moderate rise in the yield of 10-year Bunds that we as- MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 7 sume will pick up to around 1 % by the end of the year. The interest rate on 10- year government bonds will probably move within a range of between 0.4 % to 1.2 % for Germany and between 2.2 % and 3.2 % for the US. Covered bonds will continue to be domi- nated by the ECB’s purchase pro- grammes and their spreads to govern- ment papers will remain low. In the case of corporate bonds, there will be a tempo- rary tightening of spreads. Open-ended real estate funds slightly better Rising prices for properties are not yet reflected in the performance of German open-ended real estate funds. By the end of 2016, their annual performance should increase to nearly 3 %. In a low interest rate environment, this remains an ac- ceptable return for investors. Gold: hardly any return opportunities The gold price will move in a range of between 1,000 and 1,200 US dollar per troy ounce. Rising real US interest rates and a robust US dollar will have a damp- ening effect. Financial investors and speculators with a more macroeconomic focus should act as catalysts for this de- velopment. However, private investors are presumably more likely to make purchas- es – whether of bars, coins or jewellery – based on long-term capital preservation considerations if global prices fall. Central banks, too, have set their sights on the yellow metal as an emergency reserve. This especially applies to China, which is striving to achieve reserve currency status for the yuan. Therefore, from Beijing’s perspective it will be important to catch up with the US and the Europeans. After all, mining output will probably not grow any further but instead, like the proceeds of recycling, recede in 2016. Asset allocation: tactical approach Taken together, the prospects for financial markets in 2016 from a risk/reward per- spective will remain muted. Opportunities resulting from the flood of liquidity due to monetary policy operations will stand in contrast to the fundamental risks associ- ated with modest economic growth. In terms of their valuation, equities and real estate will be borderline. That is why, more than ever, the crucial factor will be rapidly anticipating the next change of topic in the markets. The aftershocks of the European sover- eign debt crisis, political uncertainties in the euro area (compounded by the refu- gee crisis), the risk of ‘Brexit’, the VW emissions scandal and its consequences as well as the interpretation of the fall in crude oil prices as the harbinger of an economic downturn all have the potential to trigger sudden about-turns on the fi- nancial markets. However, they do not have the power to bring about a shift into the alternative scenarios, since these risks do not materialise in our baseline scenar- io. Tactical allocation continues to take precedence over a buy-and-hold strategy. MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 8 Changes since Current year end level\* Q1/2016 Q2/2016 Q3/2016 Q4/2016 vs. euro, % vs. euro US dollar 14,0 1,07 1,05 1,10 1,15 1,05 Japanese yen 10,2 132 131 135 136 131 British pound 11,7 0,70 0,70 0,68 0,70 0,66 Swiss franc 10,6 1,09 1,10 1,10 1,10 1,10 in basis points % MRO rate 0 0,05 0,05 0,05 0,05 0,05 ECB deposit facility rate 0 -0,20 -0,30 -0,30 -0,30 -0,30 Overnight rate Eonia -5 -0,13 -0,20 -0,20 -0,20 -0,20 3M Euribor -17 -0,09 -0,15 -0,15 -0,15 -0,15 2-yr Bunds -27 -0,38 -0,35 -0,30 -0,25 -0,20 5-yr Bunds -15 -0,14 -0,05 0,00 0,00 0,15 10-yr Bunds -3 0,51 0,70 0,90 0,80 1,00 10-yr swap rate 6 0,87 1,00 1,20 1,10 1,30 10-yr Pfandbrief 3 0,84 1,00 1,20 1,10 1,25 Federal funds rate 0 0,13 0,63 0,88 1,13 1,38 3M USD Libor 11 0,37 0,90 1,10 1,40 1,60 10-yr US Treasuries 9 2,27 2,80 2,90 2,90 3,00 in local currency, % index DAX 10,4 10.960 11.900 11.700 11.200 12.000 Euro Stoxx 50 9,4 3.432 3.700 3.650 3.500 3.800 Dow Jones -1,4 17.737 18.300 18.000 17.800 18.500 S&P 500 0,2 2.084 2.150 2.120 2.080 2.150 Nikkei 225 10,8 19.649 20.800 20.500 19.800 21.000 %% Brent crude $/bbl -23,8 44 45 48 47 48 Gold $/oz -11 1.071 1.050 1.100 1.150 1.100 Financial market forecasts in the baseline scenario As of: \*18.11.2015 Sources: Bloomberg, Helaba Research MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 9 Country forecasts in the baseline scenario e=estimate, f=forecast; \*working day adjusted Sources: EIU, Macrobond, Datastream, Helaba Research Detailed analyses on individual countries can be found in the full version of our Market and Trends 2016 on the internet (in German) at http://volkswirtschaft.helaba.de. 2014 2015e 2016f 2017f 2014 2015e 2016f 2017f Euro area 0,9 1,5 1,6 1,6 0,4 0,1 0,9 1,4 Germany\* 1,6 1,5 1,7 1,5 0,9 0,3 1,2 1,5 France 0,2 1,2 1,3 1,5 0,6 0,1 0,9 1,5 Italy -0,4 0,7 1,2 1,5 0,2 0,2 0,8 1,4 Spain 1,4 3,1 2,5 2,0 -0,2 -0,6 0,7 1,3 Netherlands 1,0 1,9 1,8 2,0 0,3 0,3 1,2 1,5 Austria 0,4 0,7 1,4 1,5 1,7 0,9 1,5 1,5 Greece 0,7 -0,5 0,5 2,5 -1,4 -1,0 1,0 1,0 Portugal 0,9 1,5 1,7 1,8 -0,2 0,5 1,1 1,3 Ireland 5,2 5,3 4,0 3,8 0,3 0,1 1,3 1,5 United Kingdom 2,9 2,4 2,2 1,8 1,5 0,1 1,3 2,2 Switzerland 1,9 0,8 1,2 1,6 -0,1 -1,1 -0,1 0,6 Sweden 2,3 2,8 2,7 2,6 -0,2 0,0 1,0 1,8 Norway 2,2 1,1 1,3 1,8 2,0 2,1 2,3 2,2 Poland 3,3 3,4 3,2 3,2 0,0 -0,9 1,5 1,8 Hungary 3,7 2,7 2,5 2,5 -0,2 0,0 1,8 2,5 Czech Republic 2,0 4,3 2,5 2,6 0,4 0,4 1,3 2,0 Turkey 2,9 3,0 2,8 3,5 8,9 7,5 7,3 6,7 Russia 0,6 -3,7 -0,5 1,5 7,8 15,5 8,5 6,0 United States 2,4 2,5 3,0 2,5 1,6 0,1 1,5 2,0 Japan -0,1 0,5 1,0 0,5 2,7 0,8 0,8 2,0 Asia ex Japan 5,7 5,3 5,1 5,0 3,6 2,7 3,5 3,5 China 7,3 6,8 6,5 6,0 2,1 1,6 2,0 2,5 India 7,3 7,0 6,5 6,5 6,7 5,6 5,9 5,8 Latin America 1,4 0,3 1,5 2,5 10,7 13,0 11,5 9,0 Brazil 0,2 -3,0 -0,5 1,5 6,3 8,8 6,6 5,2 World 3,2 2,9 3,2 3,2 3,1 2,8 3,2 3,1 Consumer prices Real change yoy in % Change in yoy in % Gross domestic product MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 10 2 Negative scenario: Steeplechase (20 %) In our negative alternative scenario “Stee- plechase” growth comes to a standstill, regulations restrict business activity and investment does not materialise. Aside from economic rifts, political ones also open up. Military conflicts spread. In Eu- rope, the sovereign debt crisis flares up again and casts doubt on the survival of the single currency. Depending on how many hurdles and obstacles appear, GDP growth in the US slows down significantly and economic output in the euro area as well as in Germany even contracts. The increasing underutilisation leads to defla- tion. Emerging markets are forced to seek recourse to the IMF; the risks of liquidity crises suddenly increase. A hard landing by the Chinese economy is the result of upheavals in the wake of a property and investment bubble. Investors flee from risky assets into the safe havens of US Treasuries and Bunds. The Fed and ECB attempt to counteract the crisis with additional purchase pro- grammes and interest rate cuts. Yields on 10-year US Treasuries fall as low as 1 % and the yield on 10-year Bunds drops below zero. The euro/dollar exchange rate comes under immense pressure and falls below 0.90. Corporate profits decline significantly and the DAX crashes to a region of around 6,000 points. 3 Positive scenario: Sprint (10 %) In the positive alternative scenario “Sprint”, all economies race at high speed towards the finishing line with all members of their teams. Regulation and bureaucra- cy are reduced, Industry 4.0 gives rise to fast and efficient processes. A broad, self- sustaining boom is the result. Low produc- tion costs thanks to permanently low commodity prices lead to a surge in capi- tal equipment investment in importing countries. The ECB terminates its pur- chase programme for government bonds but does not yet raise interest rates in 2016. The yield curves become consider- ably steeper. This leads to significant lower prices on the bond markets in the US and the euro area. In the Sprint sce- nario, equities gain and easily outperform fixed-income securities. Strong share price increases overcompensate for the negative effects of increasing interest rates. Shares experience double-digit growth across the globe. The DAX tests the 14,000 mark. In the competition between currencies, the euro benefits from a tailwind. The euro/dollar exchange rate recovers towards 1.30.  HELABA RESEARCH · DECE MB E R 2 01 5 · © H E L A B A 11 MARKETS AND TRENDS 2016 HELABA RESEARCH · DE CEMBER 2015 · © HELAB A 12 Helaba Landesbank Hessen-Thüringen MAIN TOWER Neue Mainzer Strasse 52-58 60311 Frankfurt am Main Phone: +49 69 9132-2024 Fax: +49 69 9132-2244 Bonifaciusstrasse 16 99084 Erfurt Phone: +49 361 217-7100 Fax: +49 361 217-7101 www.helaba.de

Economic and Capital Market Outlook 2016: Consumption as the single driver for growth in Germany. Emerging markets crisis subsides. DAX breaks through 12,000 mark again.