- Trade tensions and Central banks’ meetings focused the markets’ attention during this week. The threat of fresh US tariffs on Chinese imports and potential retaliation from China (it will seek support from the WTO) added some pressure on risky assets early this week. Nonetheless, it eased at the end of the week, with positive expectations about US-China relations as the US asked for fresh trade talks. Furthermore, NAFTA negotiation noise faded into the background as markets are still waiting for fresh news on Canada-US negotiations. The numerous central banks’ meetings, with their outcomes mainly in line with analysts’ expectations, also kept the attention this week.
- As expected, the European Central Bank kept its monetary policy stance unchanged.The ECB left key interest rates unchanged and Draghi reaffirmed the ECB plans to stop the QE programme at the end of this year. GDP growth has been revised slightly downwards, while the outlook for inflation remains unchanged. Moreover, the Bank of England also fulfilled markets expectations and kept the interest rate unchanged unanimously.
- Core yields increased during the week: The US Treasury 10Y yield approached the 3% threshold despite lower-than-expected price data. Meanwhile, the 10Y Bund yield reached 0.45% due among other things to positive confidence data. Against this backdrop, peripheral risk premia narrowed this week, led by Italy (despite intra-day volatility) on the back of optimism on 2019 Italy´s budget negotiations.
- The USD depreciated during the week amid some easing in trade concerns (China-US fresh trade talks and US-Canada NAFTA talks) and fuelled by yesterday´s weaker-than-expected US inflation data which offset somewhat last Friday’s strong jobs data in the US.
- The EUR and the GBP took advantage of the weaker USD and appreciated strongly. Both benefited from optimism about a Brexit deal and their central banks’ meetings (in line with expectations and maintaining a cautious optimism about the economic outlook).
- The easing of trade tensions contributed to boosting the positive mood in developed equity indices, which increased strongly in both the US and Europe. Emerging equity indices also improved their performance after last week’s sharp drops.
- The Turkish Central Bank beat market expectations and raised interest rates by 625 bps from 17.75% to 24%, causing the TRY to appreciate strongly. The Russian rouble also recovered from its recent lowest during the week in which its central bank today unexpectedly increased its key rate by 25 bps to 7.50%. Other emerging currencies also benefited from easing trade tensions, rising commodity prices and the weakness of the USD. The main exceptions were Brazil, which is suffering from political issues, and Argentina.
- Crude oil prices increased during the week on the back of lower-than-expected US reserve data and also weather-related issues in the US which both continue to threaten global oil supply, adding more pressure to US sanctions on Iran´s production.
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