Financial Markets Daily Report

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Risk aversion continued to set the tone during a highly volatile session at the end of the week, as investors read the US payrolls report as evidence that the Fed will continue tightening monetary policy.

Monetary policy tightening centered the stage again, with several US Federal Reserve members arguing that interest rates needed to be hiked further and that there were no clear signs of inflation having peaked yet. In the euro area, the accounts of the last ECB meeting revealed a broad-based concern of GC members about current inflation figures.

Investors' optimism faded away in yesterday's session as concerns about a recession mounted and central bank officials insisted on tightening monetary policy. Sovereign yields surged and equities fell in both sides of the Atlantic, while oil prices rose modestly after the OPEC+ confirmed that it plans to cut production by 2 million barrels per day. 

In yesterday's session, investors maintained their appetite for riskier assets, after a drop in the number of job vacancies in the US fueled expectations of a monetary policy pivot from the Fed. In this direction, the central bank of Australia decided to hike rates by 25bp, slowing down the pace of its tightening.

In the first session of the week, investors traded with optimism, after the worse-than-expected US ISM data for September let traders to think the Fed could pursue a less aggressive monetary policy stance than previously expected. Nevertheless, NY Fed President John Williams said that there is still job to do to curb inflation.

On Friday, investors continued to weigh the hawkish monetary policy agenda of the main central banks and the upside surprises on inflation data. In the euro area, headline HICP inflation jumped from 9.1% to 10.0% and core inflation increased by 0.5pp to 4.8% yoy.

Risk aversion continued to set the tone during a volatile session on Thursday, with the focus turning to the risk of persistency of inflationary pressures and a new round of hawkish commentary from various central bank officials.

Financial markets recorded yet another session with high volatility, with the key drivers remaining the direction of monetary policy, the escalation in tensions with Russia and the strength of the USD.

Volatility remained elevated across financial markets, with investors keeping the focus on the mix of monetary and fiscal policy across advanced economies, more notably in the UK. On the data front, growth in house prices in the US slowed down in July while US consumer confidence improved for a second month in a row in September.

Investors continued to trade with a cautious approach at the start of the week, with risk appetite overshadowed by fears of persistent inflationary pressures and a global recession. UK markets remained in focus, after the pound fell near parity against the USD and bond yields surged as the government reiterated plans to cut taxes.

Yesterday, investors continued to digest the hawkish tone of the main central banks. The Bank of England and the Swiss National Bank decided yesterday to hike interest rate by 50 bp and 75bp to 2.25% and 0.50%, respectively. In the UK the central bank also decided, unanimously, to gradually reduce the size of its balance sheet.

The US Federal Reserve’s meeting centered the stage in a risk-off session, also spurred by the escalation of Russia’s offensive in Ukraine. As expected, the central bank raised policy interest rates by 75 bp while President Jerome Powell said that interest rates will need to stay in restrictive territory for longer, as shown in the dot plot.