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Sovereign bond yields rose across Europe yesterday after an ECB survey showed consumer expectations for inflation edged up, which could pressure the ECB for further rate hikes. Inflation concerns were also stoked by Brent crude oil reaching a new year high after Saudi Arabia and Russia announced an extension of supply curbs through year's end.

Risk-off appetite prevailed among investors yesterday. In the eurozone, a raft of negative data releases weighed on stocks, as both retail trade across the region and German factory orders surprised on the downside.

Yesterday’s session saw subdued trading volumes and a risk-off sentiment. In the Eurozone, the downward revision of Q2 GDP growth figures prompted sovereign bond yields to fall. Renewed signs of industrial weakness in Germany stoked concerns of economic malaise and pushed down stocks as well.

Investors ended the week on a cautious note: trading volumes were light and most asset prices were little changed. Sovereign bond yields were largely unchanged in the eurozone, while rising slightly in the US despite most Fed officials who spoke in recent weeks tended to lean towards a pause in the hiking cycle at the September meeting.

In yesterday’s session, investors traded cautiously as they awaited  key economic data later this week (US CPI inflation) and the ECB monetary policy decision on Thursday. The main economic event yesterday was the downward revision of the European Commission’s summer GDP forecasts.

Financial markets ended the week digesting Thursday’s ECB rate decision. If investors initially interpreted Lagarde’s speech as implying a slightly dovish bias going forward, several ECB officials pushed back against such interpretations on Friday, pushing European sovereign bond yields up, peripheral spreads to widen, and a steepening of the curve.

Investors began the week focused on Wednesday’s FOMC meeting and weighing the impact of the steady rise in crude oil prices, with the Brent benchmark rising a further 0.7% during the session. In this context, European sovereign bond yields rose across the board, as did US short-term benchmarks.

During yesterday’s session investors largely digested the Fed’s hawkish pause on Wednesday, positioning further into the narrative of a soft landing for the US economy and higher interest rates for longer. Thus European and US government bond yields rose in the medium and long term, and either fell or remained unchanged in the short term.

Financial markets ended the week giving mixed signals from both sides of the Atlantic. In Europe, flash PMI data for September showed a slight improvement in business activity, albeit still signalling economic contraction amid a weak German manufacturing sector, pushing up government bond yields and dragging most equity indices lower.

Stock markets advanced in the US, Europe and Asia while sovereign yields remained stable. In Spain, markets underperformed their peers as stocks declined and sovereign spreads rose.

Yesterday's session was filled with economic data releases. In the US, Q2 2023 GDP revision left growth unchanged from previous estimates at 2.1% SAAR, and personal consumption had its slowest increase in a year. In Europe, September inflation in Germany eased to 4.5% y/y from 6.1% in August but ticked up in Spain to 3.5% from 2.6%.

Investors traded with a slightly higher risk appetite on Friday as several key inflation data points on both sides of the Atlantic fell and despite the risk of a US government shutdown, which was eventually averted over the weekend, rose. Eurozone inflation fell to a 2-year low, with core CPI showing positive momentum and US core PCE also moderating.

In yesterday’s session, economic sentiment data releases were the focus of investors’ attention. In both Europe and the US, better-than-expected, but still weak economic data, pushed sovereign yields down on both sides of the Atlantic amid an upward trend in previous sessions.

The week started off with a volatile session as markets await key economic data this week (PMIs for advanced economies and US 3Q GDP), 3Q euro area Bank Lending Survey, the ECB's rate decision, further 3Q earnings, and news from the Middle East.

Volatility rose during the last session of the week amid heightened tensions in the Middle East, mixed corporate earnings, and expectations of the FOMC meeting later this week. Stocks fell across the globe, with US and European stock indices entering “correction” territory after falling 10%  their most recent peak in July.

In yesterday’s session markets were mixed across the globe in a day without major economic news. Sovereign bond yields rose on both sides of the Atlantic after days of declines, with euro periphery countries’ yields posting the largest increases and risk premia widening.

In yesterday’s session, investors traded cautiously amid mixed comments from central bank officials regarding interest rates’ paths ahead. In the euro area, ECB Chief economist Phillip Lane said that not enough progress has been accomplished in bringing inflation back to 2% and some other members did not rule out an additional rate hike.

In yesterday's session sovereign bonds took center stage once again. Yields extended their declines both in the euro area and in the US, where higher-than-expected weekly jobless claims pointed to a cooling labor market and gave investors further reasons to believe the Federal Reserve is done hiking rates.

Investors remained trading cautiously yesterday, as they still expect no further tightening of monetary policy and as economic data came in slightly better than expected. In the eurozone, the consumer sentiment indicator rose slightly from -17.8 to -16.9 in November, although it remains at quite a low level. 

Investors started the week on a downbeat note, with sovereign bond yields falling across the board on both sides of the Atlantic, as expectations grew that major central banks may be done with interest rate hikes. In the Eurozone, however, Lagarde stressed that strong wage growth does not yet allow the ECB to declare victory over inflation.