Caution in markets ahead of a key week for Brexit and trade talks

  • Financial markets remained in a risk-off mood at the beginning of the week as fears of a global economic slowdown resurfaced following last Friday’s release of weak confidence indicators. On the trade front, in a final push to close a trade deal by late April, a new round of high-level US-China trade talks are expected to resume later this week. Also, developments in Europe will be in the spotlight: Brexit negotiations and Chinese President Xi’s ongoing visit to the bloc.
  • Sovereign core yields remained subdued after their recent drop triggered by safe-haven flows at the end of last week. The US Treasury 10Yr yield remained well below 2.50% - the lowest level since January 2017. Similarly, the German 10Y Bund yield continued hovering around 0% despite today’s better-thanexpected release of the German confidence indicator (IFO), which had muted impact on markets. Today’s Coere’s remarks echoed the recent dovish ECB stance.
  • European peripheral risk premia increased: the Spanish risk premium widened despite last Friday S&P maintaining Spain’s credit rating. Moreover, Italy signed a MoU with China last weekend becoming the first G7 nation to join the Belt and Road Initiative.
  • Developed equity indices remained weak: US equity markets were flat following their recent sharp fall, with the US volatility VIX rising above 16%. Meanwhile European indices were down and Asian equity markets ended with losses following last Friday’s negative close in developed markets.
  • The USD was slightly changed against its main peers. Meanwhile, the GBP remained volatile, waiting for deadlocked Brexit negotiations to progress. UK MPs will vote later today on different amendments to May’s plan, while a third vote on May’s Brexit plan could take place in the upcoming days.
  • EM currencies were mixed with the TRY recovering from its recent sharp depreciation. In Latam, the MXN appreciated ahead of this week Banxico meeting, while the COP remained broadly flat after last Friday, when the Central Bank of Colombia left the benchmark interest rate unchanged at 4.25%, as expected.

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