Financial Markets Daily Report

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Investors continued to err on the side of caution during a session with mixed results on Thursday. The key focus remained the outlook for global growth and inflation and the implications for monetary policy decisions.

Risk aversion continued to set the tone during a volatile session on Tuesday, as a better-than-expected sentiment data in the US revived concerns among investors about the pace of monetary policy tightening by the Fed.

Investors closed the week trading cautiously, taking on board data confirming a slowdown in the pace of job creation in the US but at a reduced pace relative to expectations.

A wave of weaker-than-expected economic data both in the US and the euro area yielded a moderation in the expected path of policy interest rates which, in turn, pushed sovereign yields downs in both sides of the Atlantic. Stock indices edged up in the euro area and in emerging markets while closing mixed in the US.

A speech by the president of the Federal Reserve, reinforcing the expectation that the central bank will hike rates by 50bp in December, centered the stage in yesterday’s session. In the euro area, headline inflation decreased in November from 10.6% to 10.0% y/y while the core measure remained unchanged at 5.0%.

Investors traded cautiously in yesterday's session amid lower-than-expected inflation data in some euro area countries. In particular, November HICP year-on-year inflation decreased 0.3pp and 0.7pp in Germany and Spain to 11.3% and 6.6%, respectively. 

Risk aversion continued to dominate in yesterday's session, with the key themes remaining the COVID situation in China and hawkish comments by central bank officials. In the euro area, both Christine Lagarde and Joachim Nagel said that inflation will remain elevated and might not have peaked yet, justifying a tighter monetary policy stance.

In the last session of the week, investors weighed better-than-expected economic data in the euro area with mixed signals from central banks about the pace of rate hikes in the coming meetings, including from ECB member Schnabel.

Financial markets extended gains during a session characterized by low trading volumes, due to the Thanksgiving holiday in the US. The key theme remained expectations for a slowdown in the pace of monetary policy tightening by major central banks, after a dovish reading of the accounts of the last Fed meeting.

Investors continued to trade with a positive mood ahead of the Thanksgiving holiday in the US (markets will remain closed today). Hopes that central banks could allow less tightening were reinforced by feeble sentiment data and the minutes of the last Fed meeting, where a “substantial majority” of officials backed reducing the pace of rate hikes.

Investors turned more positive during a risk-on session on Tuesday. The key themes remained the potential moderation of interest rate hikes by central banks, COVID outbreaks in China and volatility in energy markets.

Precaution continued to set the tone during the first session of the week, with investor sentiment negatively affected by the ongoing deterioration of COVID infections across China and the likely imposition of more restrictions.