Market Comment | Increasing Brexit uncertainty hit European assets

- Risk-off mood in financial markets amid fresh flow of news about Brexit negotiations which offset the easing of trade tensions between the US and China after the latter hinted at trade concessions to the US ahead of the G-20 summit at the end of this month (see).

- In this context, bond yields declined across the board: the UST 10Y yield inched down below 3.15% and the 10Y Bund went back to levels close to 0.35%. Appetite for safe-haven bonds in the euro zone led to an increase in the peripheral risk premia.

- Stocks prices continued to trend lower: in the US due to disappointing company results (see) and despite the release of better-than-expected economic data (see), while European indices suffered most from escalating political worries. Meanwhile, Chinese equity indices were able to recover amid hopes of easing trade disputes.

- The latest developments on Brexit issues hit UK assets (see), with spillovers to the rest of European assets. Yesterday, the cabinet seemed to support the Brexit deal, but the resignation of some members of the government added pressure on the GBP, among other assets, and led it to depreciate strongly against the USD.

- The EUR depreciated and broke the 1.13 USD/EUR level in early trading amid uncertainty on Brexit negotiations, however it recovered as the session went by. EM currencies appreciated across the board, favoured by the progressive recovery of oil prices. The sole exception was the ARS, while the MXN appreciated ahead oftoday’s Banxico meeting in which it is expected to hike its interest rate by 25 bps. The IDR appreciated after the Central Bank of Indonesia raised its interest rate, unexpectedly, to 6% (+25 bps) (see).

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