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Market Comment | Positive mood in developed markets while pressure on EMs moderates

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  • Dual mood in financial markets during this week. Developed markets continued with a positive mood, while EMs continued to suffer, albeit to a lesser extent, from the strong USD (although it gave them a break at the end of the week) and US yields hovered around their recent highs.
  • Geopolitical issues returned to the spotlight as the US pulled out of the Iran nuclear deal (see). There was a mild effect in financial markets, with one clear exception – oil prices. Brent prices reached their highest level since 2014, also supported by the release of weak data on US oil reserves. In this context, there was relative calm in financial markets as volatility remained very subdued (VIX below 14%).
  • The release of slightly lower-than-expected inflation data in the US (see), moderated expectations of the need for fast tightening of monetary conditions due to inflation pressures. In this context, equity indices performed positively and the USD took a breather at the end of the week, after its recent rally (taking some of the pressure off EM markets). Meanwhile, US yields halted their upward trend but remained hovering around 3% in the 10Y reference.
  • In the euro area, core yields remained stable, while Italian risk premium widened slightly during the week after talks about the potential call for elections (see). The impact was concentrated in Italy, while the effect in other peripherals was very contained. Italian equity markets also showed a clear underperformance compared with their peers.
  • The strength of the USD took a breather at the end of the week, and it lost some ground compared with other developed currencies, the main exception being the GBP, which suffered from the cautiousness of the Bank of England in its last meeting (see), which held the reference rate unchanged.
  • The sharp increase in oil prices and the stability of the USD only gave some breathing space to EMs. Some currencies recovered some ground after last week’s sell-off and others at least reduced the extent of the falls.
  • Argentina asked for IMF financial support (see) , after a sharp depreciation. Meanwhile, the pressure remains on the Turkish lira

 

 

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Update 14.30 CET 11 May

Fuente: BBVA Research

Fuente: BBVA Research

 

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Fuente: BBVA Research

 

 

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