• Markets regained risk appetite amid some positive news on the trade front, better-than-expected earnings in the U.S. retail and hopes of a more stable government in Italy. Investors will closely watch today’s Fed minutes for better insight on the decision to cut rates last month.
  • Markets have fully priced in another 25 bps rate cut in the next FOMC meeting in September. However, bets of an aggressive cut of 50 bps have declined during this week, hovering around 11% from this Monday’s 19%. In this context, Boston Fed President Rosengren, who voted against a cut in July, earlier this week downplayed the need for more rate cuts.
  • U.S. President Trump stated that negotiations with China and other trade deals were positive and insisted that U.S. economy is strong. Moreover, U.S. Secretary of State Pompeo said that the trade war could be resolved by the 2020 U.S. presidential elections.
  • On the data front, U.S. existing home sales rose slightly more than expected in July to five-month high (5.42m, 5.4m expected, 5.29m prior), while investors will eye tomorrow’s Eurozone manufacturing PMI as a further contraction is expected.
  • Both the 10Y U.S. Treasury and the 10Y German bund fluctuated, trimming partially their early drop, ahead of today’s Fed minutes and Powell’s Jackson Hole comments on Friday. Elsewhere, peripheral risk premia narrowed, especially in Italy with its yield on 10Y bond reaching the lowest level since 2016.
  • In FX, safe-haven currencies ran out of steam, while commodity-currencies gained. The euro was steady with the Italian PM Conte’s resignation having a mute impact on it, alongside the DXY index as investors await more clues concerning monetary policy. The pound slipped as the U.K. budget deficit soared and fears over a hard-Brexit persist. Meanwhile, EM currencies gained with the
  • FXJPEMCS index strengthening, except for the ARS despite the fact that Argentina’s new Economy Minister said that stabilizing the currency is the nation’s priority.
  • The price of Brent crude rose to $60.7 after U.S. crude inventories dropped more than estimated, alleviating concerns over a decline in demand driven by slowing economic growth. On the other hand, gold prices edged down, still hovering around 1500.
  • American stocks picked up with better-than-expected earnings in retail, easing fears over a global slowdown. European equities also climbed with Italian shares outperforming other indexes in the region on hopes of a more stable government with new coalition talks. Equity volatility slipped.

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