• Equity markets bounced back trimming some loses inflicted by the renewed trade tensions, while volatility eased as Trump announced a six month extension of the deadline for imposing auto tariffs on Europe and Japan. Meanwhile, bond investors shifted to peripheral and EM sovereign bonds for extra yields. However, safe-haven bonds remained well in demand despite improved sentiment, reflecting underlying caution across financial markets
  • Positive US housing data and building permits in April, and the advance in Philadelphia Fed business index, jointly with the strong labor markets, eased yesterday’s concerns about the health of the US economy, after both US industrial production and retail unexpectedly declined in March.
  • Moreover China’s Macro data disappointment continues in April, with both retail sales and industrial production growing below expectations, undermining the durability of the data strength seen in March, and building a case for more policy easing as fiscal front loading effect may be fading.
  • US-China trade negotiators will most likely meet again, keeping alive some chance for both countries to seal an agreement before June 1. However, Trump’s latest executive order that would let the US restrict telecommunications gear from 'foreign adversaries', and the inclusion of China's Huawei to a list of entities engaged in activities that are contrary to US interests, further undermines the frayed US-China relationship.
  • Elsewhere, there were some bright spots in Europan economic data. In Germany, the 1Q19 GDP advanced 0.4% QoQ, after showing no growth in the previous period and matching market expectations. Fixed investment and household consumption led the expansion. The Eurozone 1Q19 GDP grew in line with expectations (0.4%Q0Q, consensus 0.4% QoQ, previous quarter 0.4% QoQ), whereas the trade balance reached a higher than expected surplus.
  • Safe-haven bond yield inched up. The 10Y yield rebounded after falling to 2.36% yesterday , the lowest level since February 2018. Whereas market implied probability of a Fed cut in 2019 inched down but remained above 70%. Meanwhile the 10Y German yield remained at negative levels. Nonetheless, the delay of Trump’s decision on car tariff, coupled with the positive economic data in the Eurozone, pushed investors to take more risk. Both peripheral and EM sovereign risk yield spread narrowed. Moreover, Italy’s risk prima narrowed sharply, underpinned by comments from Deputy Prime Minister Luigi Di Maio (5SM), saying that Italy’s government wants to rein in debt, allaying some concerns.
  • FX markets registered minor changes, although the US dollar recovered some ground. Across EMs, Latam currencies were very stable despite oil prices continuing to climb, led by geopolitical concerns. Moreover, GBP continued to fall due to unresolved Brexit, as PM Teresa May faced calls to step down.

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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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