• Today, the chairman of the US Federal Reserve, Jerome Powell, delivering the Fed's semi-annual monetary report to Congress, reinforced the thesis of an upcoming rate cut by the Fed given the potential impact on US growth of the global economic slowdown, as well as the uncertainty related to the trade war and the Brexit.
  • Powell pointed that the Fed's base scenario continues to be one of solid economic growth and good labour market performance, with inflation eventually returning towards the 2% target. However, he stated that uncertainties have increased in recent months. Powell did not talk of any timeframe or scale for possible monetary easing, but he sent a dovish message acknowledging that the risk of low inflation may turn out to be more persistent than expected.
  • In Mexico, Carlos Urzúa unexpectedly resigned as Finance Minister through a letter addressed to President Andrés Manuel López Obrador, in which he claimed firmly that many of the decisions taken within the Ministry were opposed to Urzúa's criteria.
  • On the data front, MoM Industrial Production in France increased in May by 2.1% which is way higher than the 0.5% increase of April and the forecast of 0.3%. MoM Industrial Production in Italy increased in May by 0.9% which contrasts with the 0.8% decrease observed in April and the forecast of 0,3%. In USA, Wholesale Trade Sales in May have increased by 0.1% which was below the consensus forecast of +0.3%.
  • The European Commission has published its summer economic forecasts. The forecast for euro area GDP growth in 2019 remains unchanged at 1.2%, but the forecast for 2020 was lowered slightly to 1.4%. For 2020 the European Commission maintains the growth forecast of 1.9% for Spain, while it has slightly revised down the 2020 GDP for the whole Eurozone, Germany and France (to 1,4% from a previous 1,5%).
  • Powell's statements helped to steep the US treasury yield curve. Both the 2Y and 10Y yield fell but the 2Y yield made it stronger. Meanwhile, in Europe, better than expected industrial production data drove up bond yields. Besides, search for yield continued benefiting peripherals and risk premiums declined.
  • In FX markets, the USD weakened (DXY -0.4%) after Jerome Powell spoke. On the other hand, the Mexican peso dropped against the U.S. dollar after Mexico's finance minister resignation.
  • Crude oil prices rose more than three percent, due to U.S. inventories falling more than expected in the week to July 5. Moreover, there was some noise on the supply side as large producers evacuated some oil platforms in the Gulf of Mexico before the arrival of a storm.
  • Jerome Powell speech was good for U.S. equity due to the effect of lower interest rates on market valuation. Today, the most followed index in the world, the S&P 500, crossed the 3,000 threshold for the first time in history.

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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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