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Investors started the week trading with a risk-on mood, taking position ahead of corporate earnings and key economic data to be released this week. Today, the focus will be on the flash PMIs for January, which are expected to edge modestly up in the euro area and in the US, despite remaining below the 50-point expansionary threshold.

In yesterday's session, investors weighed mixed corporate earnings results with better-than-expected flash January PMIs. In particular, the composite indices for the euro area and the US edged up from 49.3 and 45.0 to 50.2 and 46.6, respectively. Both sectors, services and manufacturing, registered an improvement from the previous month.

Yesterday investors continued to digest the messages from central bank officials, who, in general, have toughened the stance against inflation and show a more hawkish tone. In this context, yields on sovereign bonds rose further in the eurozone, more notably in the periphery, while remaining broadly unchanged in the US.

Central bank communication remained at the center stage yesterday, as Fed and ECB officials reiterated that monetary policy would need to be restrictive for a while. In the eurozone, GC member Klaas Knot, said the ECB should only decrease the pace of rate hikes once it sees underlying inflation abating, pointing to a 50bp hike in May.

Investors started the week with no clear direction, with all eyes focusing on the release of the January CPI inflation print in the US today, where the consensus (according to Bloomberg) expects headline inflation to ease to 6.2% y/y (from 6.5% in December). The second release of Q4 GDP in the eurozone is also published today.

On Tuesday, the better-than-expected release of February PMIs fueled an increase in investors’ expectations for the path of official interest rates, which, in turn, pushed sovereign bond yields up in the euro area and in the US.

Investors traded cautiously in yesterday’s session following revisions of some key economic indicators. In the euro area, headline and core inflation for January were revised by +0.1pp to 8.6% and 5.3%, respectively, and, in the US, 4Q GDP growth was revised by –0.2pp to 2.7% q/q SAAR, mainly due to a softer private consumption.

Stock markets rebounded at the start of the week, as investors digested a new batch of mixed economic indicators and took advantage of attractive valuations, following the sharp decline in stock indices in recent weeks. Sovereign bond yields ticked down in the US and continued to edge higher across Europe.

Inflationary pressures and monetary policy actions remained the focus on Wednesday, following higher-than-expected HICP data in Germany (headline inflation rose to 9.3% y/y in February after 9.2% in January), ahead of the release of the data for the eurozone aggregate this morning. The ECB also releases the accounts of the last meeting.

Precaution and volatility continued to set the tone across financial markets on Thursday. Eurozone HICP inflation surprised on the upside (headline: 8.5% y/y in February after 8.6%; core: 5.6% after 5.3%) while, in the US, data showed unit labour cost accelerated in Q4 and new weekly jobless claims fell further last week.

Economic data releases on Friday boosted investors' sentiment and allowed sovereign yields to edge down and equities to advance. Price pressures continue to moderate but remain elevated, according to the ISM prices paid index in the US (which fell from 67.8 to 65.6) and the PPI in the euro area (which declined from 24.5% to 15.0% y/y).

Concerns about the health of the banking sector and the potential implications for the trajectory of monetary policy remained the key themes during a volatile session on Monday. Money markets showed a notable correction in expectations for terminal policy rates in both the US (5% in May) and the eurozone (3% in September).

Risk aversion extended across financial markets during a volatile session on Wednesday, fueled by concerns about the health of the banking sector in Europe, in the aftermath of the collapse of some regional banks in the US and renewed concerns about the financial position of Swiss lender Credit Suisse.

On Monday, volatility continued to dominate financial markets. While the session started with losses in stock indices and sharp declines in sovereign yields, sentiment improved throughout the day following the communication by some ECB officials. Equities closed higher and yields on sovereign bonds rose in the US and were mixed in the euro area.

On Friday, the release of HICP inflation data in the euro area centered the stage in financial markets. Headline inflation fell sharply from 8.5% to 6.9% y/y in March, but core inflation ticked up to 7.5% in a sign that price pressures are persisting. In this context, ECB member Villeroy de Galhau said there are still some more rate hikes to do.

Investors started the week trading with a cautious approach, in a session characterized by low volumes due to Easter holidays (financial markets were closed in most European countries as well as in Australia and Hong Kong).

Hawkish comments by officials from the ECB and the US Federal Reserve were the main drivers for investor sentiment in the last session of the week. In the euro area, Pierre Wunsch urged the ECB to speed up the reduction of its balance sheet and to stop reinvesting the maturing bonds while Joachim Nagel called for further interest rate hikes.

Investors continued to err on the side of caution on Wednesday, taking position ahead of the release of the Q1 GDP flash estimates for the US today and across the eurozone tomorrow.

Investors closed the week trading more cautiously than in previous days. Negotiations on the US debt ceiling, which had seemingly advanced since Monday, were halted on Friday, causing US stocks to slide after a generally positive session in Europe. Negotiations are set to resume today.