Financial Markets Daily Report

Cerca

Volatility declined during a risk-on session on Wednesday, with investors sentiment boosted by a mix of positive consumer confidence data, plummeting housing indicators and upbeat earnings from some large US retailers.

In yesterday’s session, monetary policy tightening from the main central banks continued to center the stage in financial markets. The Bank of Japan surprised with its decision to increase the range of tolerance around its yield curve control tool. The ten-year sovereign yield rose 25bp towards 0.50% and the JPY appreciated markedly.

Investors continued to err on the side of caution at the start of the week, with the focus turning to the risk of a global recession amid expectations of further monetary policy tightening from major central banks and the ongoing deterioration in the COVID pandemic in China.

Volatility and risk aversion continued to set the tone during the last session of the week, as investors were still digesting the hawkish rhetoric during the last monetary policy meetings of 2022 at major central banks.

The hawkish tone of the ECB at its yesterday's meeting centered the stage in financial markets. The ECB raised official interest rates by 50bp, as expected, but noted that ongoing increases at a "steady pace" will be necessary to bring inflation back to the 2% target and announced that the QT will start in March by not reinvesting €15bn/month.

In yesterday’s session, the US Federal Reserve meeting centered the stage. It raised official interest rates by 50bp up the 4.25%-4.50% target range, a slowdown in the pace of monetary policy tightening, but still a large move by historical standards. Jerome Powell signaled that ongoing interest rate hikes will be necessary to return price stability.

In yesterday’s session, the lower-than-expected release of US CPI inflation pushed down the expectations of a far too tightened monetary policy in the Federal Reserve. Headline inflation moderated from 7.7% to 7.1%, confirming the downward trend but still at very elevated levels, while core inflation edged down 0.3pp to 6.0%.

Ahead of today's key CPI data release in the US, which is expected to show a deceleration in inflation, investors traded cautiously. Yields on 10-year sovereign bonds edged modestly up in the euro area while increasing more notably in the US.

Investors continued to trade with caution during the last session of the week. In the US, a stronger-than-expected rise in PPI inflation (0.3% m/m and 7.4% y/y in November) triggered a pickup in sovereign bond yields and a decline in stock indices, as investors reassessed their expectations for monetary policy ahead.

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.