The tone in markets improved with US-China trade talks in the spotlight

  • Financial markets started the week on the front foot after last week’s increase in volatility. The continuation of US-China trade talks later this week increased the optimism about a potential agreement before the increase of duties from the US to imports from China before the deadline (March 1st). US politics are also in the spotlight due to a new potential shutdown as the deadline (February 15th) approaches and negotiations remain stuck. The release of the US CPI, German’s 4Q18 GDP, China’s trade balance and Brexit negotiations could also be great drivers for markets.
  • The nomination of P. Lane (Governor of the Central Bank of Ireland) to succeed P. Praet in May on the ECB board was not a surprise. His role in policy decisions will be key for the euro zone given the challenging environment.
  • Sovereign core yields inched up slightly from very subdued levels in both the US and Germany (German yields recovered from multi-year lowest levels of 0.07% in 10Y). Meanwhile the peripheral risk premia have stabilized: Italy’s risk premium narrowed while Spanish and Portuguese remained steady, the latter ahead of this week’s rating update by Moody’s.
  • Developed equity markets inched up at the beginning of the week. European stocks outperformed, while US equity indices were broadly flat. In Asia, Chinese equity markets closed up in their first session in a week due to holidays, favored, among other things, by China’s better-than-expected FX reserve for January. The RMB consolidated levels below 6.90 RMB/USD.
  • The USD continued to appreciate against its main peers while the EUR remained with its downwards trend hovering around 1.13 USD/EUR. The release of worse-than-expected 4Q18 GDP figure in the UK weighed on the GBP ahead of news about Brexit this week. EM currencies depreciated against a strong dollar and the poor performance of oil prices.

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