Potential deal to avoid US government shutdown boosts risk assets

  • There is a positive tone on the financial markets after the announcement from US lawmakers of a potential deal that includes some funding for the border. This has somewhat allayed fears over another partial government shutdown ahead of this Friday’s deadline. Moreover, there is a positive sentiment on the US-China trade relationship ahead of the resumption of high-level talks later in the week. On another front, Brexit negotiations continued to be uncertain.
  • In this context, the US Treasury 10Y yield continued to inch up, approaching the 2.70% level while the 10Y Bund yield increased slightly but remained at very subdued levels. Peripheral risk premia remained almost unchanged with Italy’s risk premium narrowing after the outcome of this weekend’s regional elections.
  • Developed equity markets were up, recovering partially from recent drops, mainly in Europe. Hopes of US-China trade developments along with the potential aversion of another US government shutdown were the main drivers, while positive earnings results also helped.
  • Regarding the UK, May continues in her attempts to renegotiate the Brexit plan with the EU while the backstop issue remains the main issue. May continued to defend reaching a deal within deadline, but as time goes by, even if an agreement is reached shorty, an extension of Article 50 seems likely if the necessary legislation is to be approved.
  • The recent rally in the USD halted today, and the EUR appreciated somewhat. Regarding EM currencies, these appreciated across the board. Latam countries benefited the most from the rise in crude oil prices (reaching levels above $62 per barrel) due to reports showing a potential additional cut in crude oil production by Saudi Arabia.

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