Weak economic activity in the Eurozone dragged on bond yields and the euro, while upbeat company earnings led the S&P to a new record high.

More signs of weakness in Germany: Ifo business climate in April fell for the seventh month (99.2, consensus 99.8, previous 99.7), suggesting the German economy continued to lose steam. In China, meanwhile, the PBOC injected 267.4 billion yuan through a targeted medium-term lending facility in order to foster credit expansion which, in turn, decreases the possibility of a reserve ratio requirement (RRR) cut in the short-term.

The ECB assessed the impact of a trade war in the economy, suggesting that higher import tariffs and trade barriers would hurt US GDP more than that of China and the Eurozone, as other nations to switch from US goods to those of China or the Eurozone’s. ECB’s conclusions differ from those of the IMF, which expects the trade war to hurt China more than the US.

China injected USD39.8bn of funds into the banking system via the targeted medium-term facility (TMLF) to encourage loans to small and private firms. The move reflects ongoing efforts to support credit expansion while trying to avoid a build up of further financial bubble. That said, today's move has sparked speculation that PBOC may be moving away from aggressive accommodation, although many analysts still expect PBOC to cut RRR in 2H19. As per calculations, the net long term liquidity provided to the banking system through today's TMLF is at RMB 110 bn after accounting for past MLF funding that was not rolled over last week. The upshot is that compared to last year's 250 bps in RRR cuts, PBOC is expected to be less accommodative in 2019 as it remains vigilant of financial stability risks, particularly from the housing market.

Meanwhile, bond prices rose with sovereign yields declining sharply across the board, led by the German bund, which returned to negative levels, after economic activity failed to gain any ground. In Spain, risk premium slightly widened, although the government reduced net issuances by 5bn to EUR 30bn in 2019.

In FX markets, the euro slightly depreciated on the back of weak activity data, while dollar strength weighed on emerging market currencies, especially in those countries with higher vulnerability.

European stocks declined, except the DAX index, which inching up slightly led by positive earnings result in the information and technology sector. Meanwhile, the European banking sector underperformed, dragged down by the lack of dynamism in economic activity, and low interest rates. In addition, comments from the ECB’s Coeuré downplaying the need to offset the side-effects of negative interest on the banking sector may also have hindered the banking sector. In Asia, the Chinese market got little help from the liquidity injection in the Chinese banking system, amid concerns that PBOC may be moving away from aggressive accommodation. In the US, upbeat company earnings led the S&P to a new record high.

Download the full report

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.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD extends slide, nears the 1.1200 figure

The shared currency is suffering from speculation the ECB will steepen easing and German Business Sentiment falling by more-than-anticipated. Speculative interest now eyeing US Retail Sales to decide whether the 1.1200 level could hold or not.


GBP/USD collapsed to fresh 2019 lows

Robust employment data fell short of supporting the Pound, badly hurt from mounting fears about a hard-Brexit, after PM’s candidates, Johnson and Hunt said that the Irish backstop is “dead” and would seek for a new daily, something the EU is not willing to do.


USD/JPY: risk sentiment skews the pair to the downside

Political and economic turmoil in Europe weighed on the market’s sentiment. US Retail Sales seen posting a modest advance in June. USD/JPY to resume its decline if the 107.70 support gives up.


US consumption trends: Retail Sales expected to keep healthy growth

US Retail Sales expected to keep a very stable and positive trend. Most of the consumption trends look good, with optimist surveys and nice housing data. Higher consumption is not translating into higher inflation.

Read more

Gold: Set-up remains in favour of bullish traders; 100-hour SMA marks a key support

Given the recent bullish momentum since late-May, the triangle might still be categorized as a continuation pattern that marks a brief pause and thus, support prospects for a further near-term appreciating move. 

Gold News