Optimism on global growth outlook increased sentiment towards risk assets. Nonetheless, moderate gains in equity markets suggest that the global growth recovery is embedded in current market prices, but the risk-on mood boosted investors to shift into the cyclical sectors.

Risk-on sentiment prevailed in financial markets after the stronger-than-forecast 1Q19 China GDP driven by an enhancement of its industrial production and consumer demand (see). This data along with the improvement of the economic expectations in Germany confirm a better global growth outlook. The focus is now turning to the PMI manufacturing data in both the Eurozone and the US, to be released this week, after the weak German PMI sent German yields lower.

Optimism about US-China trade talks continues, with the both sides trying to make some concessions: the US said it was continuing to make very good progress in the trade negotiations with China. Both sides touted progress on structural issues. Officials are to resume talks this week. China yesterday said it was mulling over a US request to shift retaliatory tariffs imposed on $50 bn of US agriculture goods to non-farm products. Nonetheless, trade concerns remain in place in financial markets as investors are waiting to see how US-EU trade talks progress (see) and what Trump’s decision in automobile tariffs will be.

In bond markets the German 10Y yield inched up and the US was steady, as China’s GDP bodes well for a recovery in global economic cycle, especially in Germany (see). However, peripheral risk premia failed to narrow, despite the risk-on mood as concerns about the Italian public deficit trend have increased recently.

Regarding FX, G-10 currencies continued fluctuating between a narrow range, despite the positive economic data, as trade concerns and Brexit limit the movements. On the other hand, China’s solid economic data provided some ground to EM currencies. Most of them have appreciated against the dollar, especially those exposed to commodity and oil prices, which increased after significant Iran oil buyers put their purchases on standby until the US decision on Iran waivers. Moreover, the improvement in the economic outlook boosted the TRY along with the ARS, partially reverting yesterday’s ARS depreciation after the release of a higher-than-expected March inflation in Argentina.

Moderate gains in equity markets suggest that the global growth recovery is embedded in current market prices, but the risk-on mood boosted investors to shift into the cyclical sectors. US 1Q19 company earnings were mixed although better-than-feared, with investors now waiting for the confirmation on the earnings outlook in the coming months and its impact on the earnings growth forecast.

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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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