Equity markets and bond yields increased due to positive data in the Eurozone, amid mixed company results and dovish comments from Central Banks officials. Markets will focus on Chinese economic data 1Q19 GDP and retail data to be released tomorrow, as it will shed some light about the capacity of China’s government to stabilize the economy.

Despite the current gloomy outlook, Germany’s ZEW data showed a better-than-expected improvement of the economic expectations (ZEW expectations 3.1, consensus 0.5, previous -3.6%) reaching positive levels for the first time since March last year. This result was driven by the hope that the global economy won’t evolve as poorly as expected, influenced positively by the Chinese data and by the extension of the Brexit deadline. The survey also points to an improvement in economic conditions for the eurozone. After the positive ZEW, the focus is now turning to the PMI manufacturing data in the Eurozone, to be released this week, after the weak Germany PMI sent German yields lower. Nonetheless, US industrial production fell in March against expectations of some rebound (-0.1%, consensus 0.2%, previous -0.1%), while the capacity of utilization declined (78.8%, consensus 79.2%, previous 79% upwardly revised). The data suggest some softening in the manufacturing data and some slackening in the economy, reaffirming the Fed’s patient approach.

Central bank officials maintained their cautious tone: the Fed’s Evans foresees interest rates will hold steady, only considering a rate cut if core inflation declines toward 1.5%, but suggested the Fed should allow inflation to grow above its target. BOJ’s Kuroda suggested Japan could cut interest rates if needed. Meanwhile, media report that a “significant minority” of the ECB policy makers think that bank’s economic projections are optimistic. The quarterly monetary policy meeting, the PBoC said it aims to continue the efforts to curb financial risks, while also seeking to stabilize economic growth. However, it suggested the monetary policy should be conducted in better coordination with fiscal policy.

In bond markets, the safe-haven bond yield only inched up in the US and Germany, despite positive data in the Europe, while the Fed fund future implied a probability of an interest rate cut decline to close to 40% and the probability interest rate pause increase to close to 60%. Meanwhile, Italy’s risk premium widened, after the Bank of Italy asserted that its deficit would rise to 3.4% of its GDP in 2020 without a rise in VAT tax, breaching the EC deficit limit. 

In FX, the main G-10 currencies are fluctuating, and ending broadly steady, with the positive European economic data failing to appreciate the Euro, as dovish ECB comments weighed on it. EM currencies slightly depreciated across the board.

Equity markets increased slightly on positive economic data and dovish comments from central banks, while company earnings results were mixed.

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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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