• Investors remained cautious ahead of the signing and the unveiled details of the U.S.-China phase one deal after some media reports introduced some noise in the markets. Against this background, bonds remained well demanded. Equity markets showed mixed results, with the U.S. hitting a new record high while the European and Asian markets inched down.
  • The U.S.-China trade agreement signing and the unfolding details were in the spotlight today after Bloomberg sources reported that U.S. tariffs on China would remain until a phase two deal was reached. Decision to roll back tariffs on the rest of $360bn worth of imports from China hinges on the nature of phase two deal, which could be delayed until after the U.S. elections in November.
  • Solid macroeconomic data in the U.S., while disappointing in Europe. U.S. December producer prices index for final demand edged up (1.3% YoY; Cons: 1.3% YoY Prev: 1.1% YoY), as the increase in cost of goods was higher than the weakening in services. Additionally, the New York Fed Empire index inched up unexpectedly in January (4.8, Cons: 3.6; Prev: 3.3), although the previous reading was revised down. On the other hand, in the theEurozone, the industrial production declined more than expected, although its path of decline moderated in November (-1.5% YoY; Cons: -1.0% YoY, Prev: -2.6% YoY, revised from -2.2% MoM), whereas its trade balance fell more than estimated in November (19.2b; Cons: 22.0b; Prev: 24.0b, revised from 24.5b). Meanwhile, macro figures out of Germany confirmed a lower growth pace in its economy, and general government surplus for 2019 declined (1.5%; Cons: 1.2%; Prev: 1.9% revised from 1.7%), its annual GDP growth also falling in 2019 (0.6%; Prev; 1.5%; Cons: 0.6%). Separately, UK inflation unexpectedly fell in December (1.3% YoY; Cons: 1.5% YoY; Prev: 1.5% YoY) below the BOE’s 2% target, while core inflation also declined (1.4% YoY; Cons: 1.7% YoY; Prev: 1.7% YoY), increasing expectations for BoE to cut interest rates.
  • Elsewhere, the Fed will maintain its current liquidity provision in monetary markets intact until the end of January (overnight lending up to USD 120 bn, 14-day repo US35bn). In February, the 14-day repo would be scaled back to USD 30bn.
  • Sovereign yields fell across the board amid the uncertainty surrounding the signing of the phase one deal. The 10Y gilt yield underperformed the rest, dragged by the release of the UK inflation slowdown as the expectations for a BoE cut increase, while Italy’s risk premia widened. Furthermore, BoE policy maker, Michael Saunders, called for more stimulus to boost the UK economy (see).
  • Although U.S.-China trade concerns, Chinese currency remained steady CNYUSD 7 threshold ahead of the highly expected deal signing. Meanwhile, the USD slightly depreciated against most of the G-10. The GBP inched down moderately after UK CPI publication, but managed to recover, hovering around 1.30. Elsewhere, emerging currencies inched down, with the BRL leading the losses amid disappointing retail sales growth.
  • In commodities, oil prices weakened as the likelihood of demand falling increases in light of the possibility that the U.S. will keep tariffs on China (see).
  • The U.S. equity market hit a fresh record high, led by positive surprise in company earnings results, while trade concerns weighed on the European and Asian markets.

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This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) Research Department on behalf of itself and its affiliated companies (each a BBVA Group Company) for distribution in the United States and the rest of the world and is provided for information purposes only. The information, opinions, estimates and forecasts contained herein refer to that specific date and are subject to changes without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document have been gathered or obtained from public sources believed to be correct by the Company concerning their accuracy, completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in securities.

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