• U.S. President Trump announced an agreement with the Congress to increase the budget deficit until the middle of 2021 which would enable to raise spending levels in both defense and non-defense areas. This deal is expected to be approved by both houses of Congress in the next few days.
  • On the trade front, Chinese state media reported U.S. Trade representative Lighthizer and Treasury Secretary Mnuchin will likely visit China next week for face-to-face talks. Furthermore, U.S. president Trump promised U.S. tech chief executives that a ban on sales to Huawei would be eased, although it still remains on a U.S. blacklist.
  • The consumer confidence in the Eurozone picked up (-6.6 pts, consensus -7.1 pts, previous month -7.2 pts). However, in the U.S. there were negative data with the Richmond Fed Manufacturing Survey significantly worsethan-expected (-12, consensus 5, previous month 3) and with disappointing existing home sales (-1.7% m/m, consensus -0.4% m/m, previous month 2.9% m/m). In this context, markets expectations of a Fed rate cut of 50 bps at the end of July remains around 20% while, markets see that the most possible scenario is a rate cut of 25 bps.
  • The IMF further reduced its global growth outlook by 0.1% for 2019 and 2020 (from 3.3% in April to 3.2% in July for 2019) against the backdrop of escalating trade concerns, Brexit-related uncertainty and increasing geopolitical tensions. The Eurozone would grow by 1.3% in 2019, unchanged from the previous forecast, and by 1.6% in 2020, 0.1% more. The downward revisions in the IMF’s quarterly outlook update are mainly concentrated in the developing world.
  • Core government bonds were steady whereas peripheral risk premia were mixed. Italy’s risk premium narrowed, erasing yesterday’s widening, whereas the Spanish risk premium widened slightly after Sanchez failed to form government.
  • In FX markets, the USD extended its gains across the G10 board and EM currencies. The pound oscillated, trimming its early appreciation as the path to Brexit is uncertain with Boris Johnson becoming the Britain’s prime minister. Nonetheless, the EC President Juncker signaled its intention to negotiate constructively toward Brexit. Elsewhere, oil prices halted its upward trend as geopolitical tensions fade after the new Britain’s prime minister Boris Johnson stated that he would not support a military action against Iran, whereas Iran’s Foreign Minister Zarif said that Tehran does not seek confrontation with London.
  • Equity markets rose with material and financial sectors leading the gains in both S&P500 and EuroStoxx.

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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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