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Market Comment | US faces another partial government shutdown



  • US yields drifted lower as the US faces a partial government shutdown if Congress cannot agree on a spending bill by 8 December. Moreover, the release of November’s payroll data in the US on Friday, coupled with increasing geopolitical tensions (North Korea and Israel-Palestine) have also contributed to lower yields this week. However, the 10-2Y slope spread continued to reach new lows (53 bps), with market-implied probabilities of a December rate hike remaining at 98%, and with markets pricing in a 63% probability of two additional hikes by the end of 2018.


  • European yields decreased during the week, but remained broadly steady today. Mixed data in the euro zone, especially weak industrial production in Germany, prevented German yields from rising (see below), although the speech by Yves Mersch suggests that the ECB should end the asset purchase programme in September (see). Peripheral yields declined, with risk premiums narrowing, especially in Portugal on the back of increasing expectations of a rating upgrade by Fitch next week. Greek bond yields showed a strong decrease in the week. The ESM announced the implementation of short-term debt relief measures for Greece (see).


  • Equity indices remained steady across the board after declining during the week due to a short-lived sell-off in the technological sector. However, concerns about the effects of deleveraging in Chinese financial markets dragged Chinese stocks down.


  • In the FX markets, the US dollar strengthened against other main currencies during the week (DXY +1%), while today it has remained broadly steady. The euro depreciated during the week (-0.9%) on expectations of an agreement on US Tax reform before the year end. The GBP continued to trade lower on the back of disappointing Brexit talks. EM FX depreciated slightly across the board, weighed down by oil prices, which have remained steady today but had declined 3% in the week, in line with other cyclical commodities.


  • Mixed data in the euro zone. Euro zone GDP grew by 0.6% QoQ (2Q +0.7% QoQ, upwardly revised by 0.1 pp). Domestic demand was the main contributor to GDP growth, especially investment, although private consumption also performed positively. Exports kept growing at the same pace as in the previous month, while imports slowed (see). German industrial production declined in October (-1.4% MoM) for the second month in a row (September: -0.9% MoM; revised +0.7), contrary to expectations (consensus: +0.5% MoM), and in contrast to the higher growth in industrial orders. On the other hand France’s exports increased against expectations.



Update 17.45 CET 7 December 2017

Table 1

Fuente: BBVA Research


Source: Bloomberg, Datastream and Haver

* With one day delay


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October, 2017

Table 1

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