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Market Comment | Geopolitical concerns and the US inflation figures were the main drivers


  • Geopolitical concerns and the US inflation figures were the main market drivers during the week.
  • The heightening tension between the US and North Korea halted the risk-on mood early in the week, with investors finding shelter in safe-haven assets. Gold prices increased, as did safe-haven bonds prices. The Japanese yen and the Swiss franc also attracted safe-haven demand. In contrast, equity markets decreased, led by the financial sector, which remains highly correlated with long-term sovereign yields.
  • Nonetheless, market movements were very limited amid a light market trading volume. Yet low market liquidity might have exacerbated movements in market risk measures. The implied volatility in the US equity index (S&P500 VIX) surged above 15, a level last reached in April, when expectations about Trump’s reflationary policies faded. Moreover, volatility of volatility also rocketed to levels well above the post-Brexit referendum surge.
  • However, market risk measure moderated slightly at the end of the week, after Merkel backed diplomatic measures rather than military solutions to the US dispute with North Korea (see). Low July US CPI figures (see), also contributed to provide some support to the US equity index, as they downplayed expectations of a Fed rate hike (probability of a hike in December 2017decreased below 40%).
  • Safe-haven bond markets ended the week increasing, with the 10Y US and German yields decreasing between 8-9 bps, while peripheral risk premiums slightly increased, though investors’ positions remained fairly neutral.
  • Equity markets ended the week decreasing across the board, with the European banking sector underperforming on the back of the decrease in long-term yields.
  • In FX safe-haven currencies (Swiss franc and Japanese yen) ended the week up, while the USD trimmed is early appreciation on the back of weak inflation figures. The euro made the opposite movement to the US dollar and ended the week returning to levels of USD 1.18, after breaking down through the USD 1.17 level in an intraday movement. Most other currencies remained broadly stable, while those physically close to the conflict depreciated.
  • Gold prices increased, while oil prices swung between gains and losses during the week on the back of oil outlook reports. Contrary to yesterday’s OPEC report, today’s International Energy Agency report cut its assessment of consumption in some emerging economies (see)


Update 18 CET 11 August, 2017

Table 1


Fuente: BBVA Research


Source: Bloomberg, Datastream and Haver

* With one day delay


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