• Muted market reaction after China and the U.S signed phase one of the trade agreement yesterday. Equity markets slightly rose after the deal was sealed, although bond yields and FX market remained broadly steady. The U.S.-China deal sealed included several measures, among others, related to industrial property protection, technology transfer and elimination of some U.S tariffs on Chinese goods in exchange for additional $200bn purchase of U.S farm, energy and manufactured goods (see). Meanwhile, the Fed’s Beige Book released on Wednesday showed that the uncertainty surrounding tariffs and trade continued to weigh on activity. However, the Fed document was also largely ignored in markets.
  • U.S manufacturing activity increased in January according to the results from the Philadelphia Fed Business Outlook, which increased much more than expected (17.0; Cons: 3.8; Prev: 2.4 revised from 0.3) as its survey’s indicators (shipments, new orders, current activity and employment) were higher than in December. Elsewhere, U.S retail sales also gained in December as it was expected (0.3% MoM; Cons: 0.3% MoM; Prev: 0.3% MoM revised from 0.2%MoM), while the control group inched up above expectations (0.5% MoM; Cons: 0.4% MoM; Prev: -0.1% MoM from 0.1% MoM). Excluding autos, retail sales soared beating expectations (0.7% MoM; Cons: 0.5% MoM; Prev: 0.0% MoM) as previous reading was revised down. Meanwhile, China’s aggregate financing data increased, exceeding expectations in December (2100.0b; Cons: 1650.0b; Prev:1754.7).
  • Sovereign yields were mixed after U.S market opening. The 10Y UST accentuated its increase, driven by the publication of the U.S retail sales data. On the other side of the Atlantic, core bonds, especially German bonds, remained well demanded at the expense of peripheries. Finally, the ECB account of the December monetary policy meeting confirms a slightly more positive tone from the ECB board regarding the economic growth: “...business surveys since mid-September suggested a stabilization in output growth at moderate rates”. They also see that see that the downside risks remained, but have become less pronounced. Some members were concernd about the impact of negative interest rates on household and banks’ net interest income, but at the end the board stated that the broad effect of negative interest rate on banks had remained positive.
  • In FX markets, the CNY continued its appreciation below the CNYUSD 7 threshold. Meanwhile, G10 currencies generally depreciated, with the USD reversing yesterday's depreciation on the back of robust retail sales data. In emerging markets, the TRY gained after Turkey’s central bank cut interest rates in line with market expectations (-75 points to 11.25%).
  • Equity markets soared, with the U.S market hitting new record highs amid strong consumer demand and U.S-China trade deal relief.

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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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