The week ended on a ‘higher for longer’ note, which weighed on assets. US non-farm payrolls for May showed a greater-than-expected job creation and an acceleration in average hourly earnings growth, while euro area compensation per employee also surprised on the upside, sending sovereign yields higher across the board on both sides of the Atlantic.

Investor sentiment was mixed on Thursday. In the eurozone, political uncertainty following the upcoming snap elections in France, with Moody’s even issuing a credit rating warning on the country, weighed on equities, with French banks suffering the most.

The week started on a mixed note for financial markets. Eurozone government bond yields rose across the board, with peripheral spreads narrowing in stark contrast to French spreads, which widened again. However, equity performance was more mixed across the region, with French indices rising on comments from Le Pen’s party on their respect for institutions.

Yesterday's session provided some mixed signals on investor sentiment. Government bond yields rose slightly on both sides of the Atlantic, with peripheral eurozone spreads narrowing. This was partly explained yesterday's auction of French sovereign bonds, which despite recent volatility were in high demand from investors.

The week ended with investors in a risk off mode in the financial markets. In the eurozone, PMI data for France and Germany came in below expectations and below last month's levels, while in the US the index rose slightly from May.

In yesterday's session, euro area sovereign bond yields advanced, with a slight widening of peripheral spreads, while equities retreated amid weak sentiment. Consumer confidence indices in both Germany and France fell from their May readings. Several remarks from ECB officials including Lane and Schnabel reiterated the ECB's data-dependent strategy.

Financial markets ended the week in a risk-off mode despite Friday's inflation data showing that disinflation is progressing on both sides of the Atlantic: US core PCE came in at 2.6% YoY, as expected; and in the eurozone the HCPI prints for Spain, France and Italy were also broadly in line with expectations at 3.5% YoY, 2.5% YoY, and 0.9% YoY, respectively.

Euro area investors kicked off the week on a cautious note as they digested the surprise results of the French legislative elections. The far-right RN came in third place, but the elections resulted in a political deadlock as no party won an absolute majority. 
 

During yesterday's session, investors continued to assess the results of the French elections last weekend which left the country with a fragmented National Assembly. Financial markets seemed to value the situation negatively and adopted a risk-averse tone, sending euro area sovereign bond yields higher and equities sharply lower, particularly in France.

Market sentiment improved during yesterday’s session as investors turned their attention away from political instability in the euro area to monetary policy in the US. On his second day in Congress, Fed Chairman Powell said the Fed doesn’t need inflation below 2% before cutting interest rates and signaled the balance sheet run-off still has “ways to go”.

Financial markets started the week with all eyes on the ECB’s Governing Council meeting on Thursday.  The ECB is expected to leave interest rates unchanged and stick to its "data dependency" approach. European sovereign bond yields fell and peripheral spreads tightened yesterday ahead of the meeting and today's Q2 Bank Lending Survey.

Markets on both sides of the Atlantic saw mixed results yesterday. In the eurozone, where all eyes are on tomorrow’s ECB meeting, sovereign bond yields fell while peripheral spreads remained flat after the ZEW survey showed German business sentiment at its lowest in four months in July and despite the Q2 BLS showing an increase in credit demand.

Another session of mixed results across markets on Wednesday. Sovereign bond yields remained rather flat amid low trading volumes on both sides of the Atlantic. In the eurozone, all eyes were set on today’s ECB meeting, where the bank is expected to leave interest rates unchanged. In the US, Fed officials said they are “closer” to cutting interest rates.

A mixed session in financial markets on Thursday as the ECB left interest rates unchanged as expected. Lagarde said that eurozone growth was likely to have slowed in Q2 and expected wage growth to moderate in the coming quarters, but insisted that the September move remained "wide open".

Lower-than-expected PMIs for July in the euro area (services 51.9 vs. 52.9 expected, and manufacturing 45.6 vs. 46.1 expected) sent the region's sovereign bond yields higher. Equities were mixed, ending mostly lower, while the PSI20 advanced and the Ibex-35 ended flat, boosted by the energy and utilities sectors.

Investors ended the week with renewed risk appetite as inflation data released during the day was broadly in line with expectations. In the US, the core PCE price index rose 0.2% month on month in June, as expected, bolstering hopes of a Fed rate cut in September. In the eurozone, 1 and 3 year inflation expectations remained at 2.8% and 2.3% respectively.

Investors started the week in a cautious mood awaiting several key events: from Central bank meetings across many developed economies, to a raft of important economic data and companies' earnings. In the data front, today Q2 GDP figures will be released for the eurorozone aggregate and its main economies, as well as some inflation data for July.

Sentiment was mixed in yesterday's session amid a raft of economic data. In the euro area, slightly higher than expected Q2 GDP (0.6% yoy vs. 0.5% expected), with France (1.1% yoy vs. 0.7% expected) and Spain (2.9% yoy vs. 2.5% expected) leading the surprises, supported equity markets. Sovereign bond yields edged lower ahead of today's inflation data.

Investors ended August digesting inflation data which confirmed prices are moving in the right direction for the ECB and the Fed to cut interest rates in their September meetings. Specifically, euro are inflation cooled to 2.2% y/y last month, and the US PCE Price Index (the Fed's preferred inflation gauge) for July was unchanged at 2.5% y/y.

Lacking any major macro data to trade on and with US markets closed for the Labor Day holiday, investors kicked off the week with a quiet session on Monday. The final reading of the August manufacturing PMI for the euro area came in without any major revisions at 45.8, confirming the sector's weakness.