Investor risk appetite soured and global risk assets fell after President Trump threatened a “massive” tariff hike on Chinese exports, citing “hostile” export controls over rare earths. Equity indices declined across the Atlantic, with the tech-focused Nasdaq among the worst performers. Trump’s threats were watered down over the weekend.
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Investor sentiment improved at the start of the week as President Trump softened Friday’s rhetoric on China and both sides signaled openness to resuming trade talks. Risk appetite also benefited from the de-escalation in the Middle East. Global equity indices advanced, led by the technology sector, while volatility declined sharply.
Wednesday saw another mixed session in financial markets. Eurozone sovereign bond yields fell, with curves flattening slightly, as August industrial production data in the eurozone surprised to the upside (though still contracted). The French spread also narrowed and sat below the Italian one, as Lecornu’s new government cemented its chances of survival.
Thursday saw another mixed session in financial markets. US Treasury yields declined after several Fed officials commented on further rate cuts, although they disagreed on the magnitude and pace of easing. Eurozone sovereign bond yields also fell, particularly Italian ones, following the Government’s submission of its Draft Budgetary Plan to the European Commission.
On Friday, equity markets on both sides of the Atlantic opened with losses as investors weighed concerns about credit quality in the US after two US regional lenders disclosed loan issues. However, during the day those concerns eased, allowing the US indices to close with gains and the Europeans to partially recover.
Monday’s session extended the risk-on sentiment from Friday. Strong earnings results from US companies and the easing of trade tensions between China and the US boosted global stock markets, with volatility dropping.
Without any significant drivers, markets traded without a clear direction during yesterday’s session, pausing the previous’ days strong risk-on sentiment. Treasury yields edged lower in the US ahead of the Fed’s meeting next week (expected to lower interest rates by 25bp). European government yields fell across the region, keeping peripheral risk premia constant.
For the second consecutive day, markets traded without a clear direction. Government yields ended flat on both sides of the Atlantic while stocks mostly fell, with some exceptions in the euro area, amid reports that the Trump administration is considering to curb exports to China made with US software.
Yesterday's session was dominated by the news that the Trump administration will impose harsh sanctions on two large oil companies in Russia, in an attempt to pressure Moscow into negotiations over the war in Ukraine. As a consequence, Brent prices rose +5% to $66/barrel and sovereign yields advanced globally, especially on the long side of the curve.
Investors ended the week on an upbeat note. Euro area PMIs suggested activity expanded during October (the composite index rose from 51.2 to 52.2), leading to higher sovereign yields and gains in the main equity indices. Cooler-than-expected U.S. inflation reinforced expectations of a Fed interest rate cut and boosted stock markets. The EURUSD held close to 1.16.
Investors kicked off the week with a risk-on session driven by optimism that China and the U.S. will announce a trade deal as Trump and Xi Jinping are set to meet at a summit in South Korea. Global stocks advanced, with the S&P 500 hitting a new all-time high, and the Ibex-35 surpassing its 2007 record. The dollar weakened and gold prices fell below $4,100/ounce.
Markets had a relatively calm session ahead of the Federal Reserve meeting today, where it is widely expected to lower interest rates by 25bp. Sovereign yields were mostly flat on both sides of the Atlantic, while the EURUSD cross held steady around 1.16. Equities advanced in the US on the back of a strong earnings season and were mixed in the euro area.
The Federal Reserve lowered interest rates by 25 bps to 3.75%–4.00%. Yet Chair Powell struck a hawkish tone, pushing back against market expectations of further cuts. U.S. Treasury yields rose +10bp along the curve, and the dollar strengthened, with the EUR/USD cross near 1.16. The market-implied probability of a December cut fell from 92% to 65%.
As expected, the ECB kept interest rates unchanged (depo at 2%) and reinforced its meeting-by-meeting data-dependent strategy. Euro area sovereign yields edged higher, and equities had a mixed session across the region. On the macro front, euro area GDP grew 0.2% qoq in Q3 (1.3% yoy), up from 0.1% qoq in Q2.
Markets ended the week mixed. Sovereign yields were broadly stable on both sides of the Atlantic, with curves steepening slightly. In the US, short-term yields declined despite hawkish Fed commentary opposing further rate cuts. In the eurozone, October CPI came broadly in line with expectations (although core inflation surprised slightly to the upside). Very long-term yields rose following the French parliament’s rejection of a wealth tax proposal, which also widened the French spread.
Investors started the week in a mixed mood. US Treasuries rose modestly amid growing divisions within the FOMC, as Miran reiterated the need for aggressive rate cuts, citing what he described as tight financial conditions, while Goolsbee warned against easing prematurely given persistent inflation.
The week started on a risk-off tone. Equities fell across the board, particularly in the US, as several Wall Street CEOs and major banks warned of potential drawdowns and concerns over overstretched valuations. European and Asian indices also declined, albeit more modestly, with Spain’s Ibex closing flat.
Markets traded on an upbeat tone on Wednesday. Sovereign yields rose on both sides of the Atlantic on positive macro news. US Treasuries rose as the ISM index showed services sector activity increased in October to 52.4, an eight-month high. The ADP survey showed job creation remained subdued in October, but surprised positively too (42k vs 30k expected).
Risk appetite deteriorated on Thursday. Sovereign yields fell in the US after a private report (the Challenger index) showed the US economy shed more jobs than expected in October, reportedly due to AI-driven layoffs. Legal uncertainty around Trump tariffs added pressure, as Supreme Court justices questioned their validity during an ongoing hearing. The move came despite Fed officials speaking on the day pushed back against rate cuts, citing inflation risks and the lack of official data.
Friday’s session registered losses in nearly all major stock markets as investors reassessed elevated valuations in the technology sector. On the macro side, the University of Michigan Consumer Sentiment Index fell to a three-and-a-half year low, as worries about the economic consequences of the longest government shutdown ever increased.