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Market Comment | Risk-off sentiment faded during the week ahead of French elections

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  • Financial markets were little changed as the ongoing risk-off movement that has been present during the past week on the back of geopolitical tensions is starting to fade, judging by the performance of sensitive assets performance: safe-haven assets continued to inch down and prices of risk assets increased.
  • The EUR appreciated signally and European sovereign risk premiums narrowed during the week, as markets were more optimistic ahead of this Sunday’s first round of the French elections, where according to the latest polls there are higher prospects of a Macron presidency (see). Moreover, economic data supported the positive mood, as euro zone flash manufacturing and services PMI (April) increased by more than expected. Meanwhile, inflation in the EZ in March was confirmed at 1.5% (see), allaying concerns of a potential spike in European inflation. On the other hand, Portuguese debt is in the spotlight ahead of DBRS’ rating decision later today.
  • Expectations of US reflationary policies continued to cool, as reflected in this week’s USD depreciation, as investors worried about a significant delay in the promised US tax reform (see). Oil prices declined significantly during the week, on the back of lower-than-expected US inventories of both crude oil and gasoline. EM currencies remained little changed during the week, as a result of the combination of these contrasting factors.
  • The GBP appreciated strongly this week after Theresa May’s surprise announcement of snap general elections in the UK on 8 June (see), citing division among Westminster politicians and after the UK parliament’s vote in favour of early elections (see). The appreciation in the GBP dragged down the FTSE 100 during the week.
  • The Turkish Lira appreciated strongly after uncertainty about the constitutional referendum came to an end, and the “yes” vote for executive powers won (see).

 

BBVA Research suggests the following reading list:

 

  • IMF: World Economic Outlook (see)
  • IMF: Global Financial Stability Report (see)
  • Necessity as the mother of invention: monetary policy after the crisis (see)
  • China faces a tough fight to escape its debt trap (see)

 

Update 17:00 CET 21 April, 2017

Table 1

Source: Bloomberg, Datastream and Haver

* With one day delay

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