• There were some mixed trade headlines. Early cautiousness faded after the Chinese Ministry of Commerce spokesman said China and the U.S. have agreed to roll back tariffs gradually as they work toward a deal. Nonetheless, the U.S. has yet to confirm the statement issued by Beijing. On the other hand, the signing of the phase one trade deal by Trump and Xi could be delayed until December as the two U.S. locations for the anticipated meeting have been ruled out, but U.S. officials assured that talks continue on a constructive note.
  • The EU Commission lowered its earlier estimates for this year’s Eurozone growth to 1.1% from 1.2%, while cutting the growth in 2020 and 2021 by 0.2% to 1.2% amid the global deterioration underpinned by the trade war and the persistent weakness of the manufacturing sector.
  • Today’s economic calendar was light. Germany’s industrial production fell more than expected in September dragged by capital and intermediate goods (-0.6% m/m, consensus -0.4% m/m, previous 0.4% m/m). Tomorrow's October China trade data will be key to watch in the context of record tariffs collected by the U.S. in September. Chinese exports are expected to contract less than imports.
  • Sovereign bond yields rose significantly led by hopes of a trade truce (10Y US +9.6bps and 10Y Ger +9bps). The yield on the 10Y France bond turned positive for the first time since July. Regarding peripheral bonds, the 10Y Italy bond yield jumped sharply (+16bps) with its risk premium widening by nearly 7bps after the European Commission predicted that Italy’s debt would grow to 136.2% of GDP this year, and that it would continue rising to 136.8% and 137.4% in 2020 and 2021 respectively (see). The EC forecasts differ from the Italian government’s estimates as the latter expect the debt-to-GDP ratio to decrease in the coming two years. However, the Portuguese risk premium narrowed, while the Spanish one remained steady. Separately, investors are postponing their expectations of an additional Fed rate cut to September (52%) on the backdrop of rising trade optimism.
  • G10 currencies were contained in general with the sterling weakening (GBPUSD -0.3%), despite the BoE’s decision to maintain the status quo on rates as expected. The depreciation of the sterling was led by a dovish BoE dissent, where two MPC members out of seven voted to cut rates immediately, with markets pricing in a BoE rate cut by August 2020. The euro trimmed early gains and ended up weakening marginally driven by a gloomier Eurozone economic outlook. As regards to safe-haven currencies, both the Japanese yen and the Swiss franc weakened, whereas the USD gained modestly (DXY index +0.2%). Elsewhere, EM currencies’ performance was again mixed with the Brazilian real extending yesterday’s significant drop. The yuan appreciated (USDCNY +0.3%), falling below the 7 threshold on positive trade developments.
  • Global stocks edged higher with both the S&P 500 and Dow Jones continuing to hit fresh record highs. Cyclical sectors outperformed others as the risk appetite improved.

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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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