During the week, government bonds rose strongly as weak economic data from Germany and China renewed investor concerns about global economic growth. The only relief from market stress came from the commercial front in which the Trump administration declared that it will delay the 10% tariff on some Chinese imports until the end of the year. Similarly, the appreciation of safe-haven currencies and the rally in gold prices indicated a risk-off mood in financial markets.

Market expectations that the ECB will aggressively relax its monetary policy at the September meeting rose during the week. Germany’s flash GDP shrank in the second quarter, in line with expectations (-0.1% q/q, consensus -0.1% q/q, previous quarter 0.4% q/q). Moreover, the President of the Central Bank of Finland and member of the Board of Governors of the ECB, Olli Rehn, called on Thursday for a strong and significant stimulus programme at the next ECB meeting. In an interview with the Wall Street Journal added that it was preferable for the ECB to exceed market expectations in its new measures.

Today, the preliminary estimate of the University of Michigan's consumer sentiment for the US was published. It fell to 92.1 in August (98.4 in the previous month, consensus of 97.2).

Sovereign bond yields resumed their downward trend throughout the week. The 30Y U.S. Treasury yield and the 10Y German bond yield hit record lows. The 10-2Y yield curve is inverted in the U.S., mounting concerns over a global slowdown. Furthermore, the spread between 2-10Y UK Gilts yields dropped below zero for the first time since the financial crisis.

In FX, the DXY index strengthened amid mounting fears. In EM, ARS depreciated sharply after President Macri’s was defeated in primary polls. Gold benefited from the safe-haven bid, rising throughout the week. Stocks were very volatile during the week amid concerns about the possibility of a global recession and news about the trade war

 

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