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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.

Risk aversion returned to the fore during a session characterized by low volumes in the run-up to the holiday season. Investors continued to reassess their expectations about monetary policy tightening amid hawkish commentary from some ECB officials and robust economic data in the US (e.g., new jobless claims and the upward revision in Q3 GDP).

Investors started the week in a mildly risk-on mood, with sovereign bond yields falling across the board. In the Eurozone, ECB officials speaking on Monday seemed confident about a future rate cut, although they remained inconclusive on the exact timing of it. US yields were weighed down by the Treasury's lower than expected Q1 borrowing forecast.

Investor sentiment was mixed across the globe on Friday. In the eurozone, government bond yields rose as preliminary PMI data for January came in above expectations thanks to a slight improvement in the manufacturing sector to 46.1. US Treasury yields fell as both the services PMI and the U. of Michigan consumer sentiment index surprised to the downside.

Markets kicked off the week in a rather calmed tone as investors await key economic data this week which will provide them further clues regarding future interest rate cuts. On the data front, NY Fed’s January Consumer Expectations Survey found that respondents expect 1-year inflation to remain at 3%, the lowest reading in three years.

In the last session of the week, investors continued to trade with a risk-on mode, taking on board the fall in HICP inflation in the eurozone (9.2% in December after 10.1%) and the US employment report for December. On balance, the data suggested central banks will continue hiking policy interest rates but likely at a reduced pace.

In the last session of the week, higher-than-expected US PPI inflation data in January (0.3% m/m from -0.1% in the previous month) pushed back the expectations of interest rate cuts from the Federal Reserve and favored an increase in sovereign bond yields on both sides of the Atlantic.

Investors continued to trade with a cautious mood on Wednesday, as results from the US midterm elections suggested the Republicans may gain control of the House but the Democrats could hold on the Senate. Investors were also taking position ahead of a crucial CPI inflation report in the US today.

Investors traded with cautious optimism at the last session of the week, taking on board a new round of hawkish comments from Fed officials, weak survey data (e. g. the monthly fall in the IFO business climate in March) and the EU-US plan to cut reliance on Russian natural gas. The Ukraine-Russia war has now extended for over 1 month.

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.

The ECB lowered interest rates by 25bp and left the deposit rate at 3%. The central bank also removed a reference in its guidance to keeping interest rates sufficiently restrictive, a sign that further policy easing is probably coming. Following the meeting, the probability of a 50bp rate cut in January, instead of 25bp, has risen from 30% to above 60%.

Tuesday's session saw a slight divergence in risk appetite on both sides of the Atlantic. In the US, a raft of data showed a dynamic economy: job openings unexpectedly rose in November; while the services PMI rose to 54.1 in December, and the prices paid component reached 64.4. Treasury yields rose on the news, with the curve steepening, weighing on equities.

Investors traded cautiously in yesterday’s session as they await the ECB’s decision and US macro data in the coming days. Sovereign bond yields edged higher across the board, while stock markets were mixed, falling in the euro area and modestly rising in the US. Chinese stocks rallied on reports of a government stimulus to stabilize stock markets.

Tuesday saw another volatile session in the financial markets. Risk appetite rebounded from the Asian session on hopes of Trump's willingness to negotiate tariffs with some partners, which extended into the European session and the start of the US session. Asian and european stocks rose and while eurozone government bond yields rose slightly.

The Federal Reserve kept the federal funds rate unchanged at the 4.25%-4.50% range and highlighted that the risks of higher inflation and higher unemployment have risen. The decision had been widely discounted by markets and had little impact on financial assets. Markets still expect three cuts in 2025, starting in July, and Treasury yields ended the session mostly flat.

Investors ended the week on a cautious, yet slightly positive note. All eyes were on the trade talks between China and the US that took place over the weekend. Trump floated in social media an alternative tariff level of 80% on Friday (compared to the current 145%). Both sides have touted progress in the talks, but have offered few details so far.

Financial markets recorded yet another session with high volatility, with the key drivers remaining the direction of monetary policy, the escalation in tensions with Russia and the strength of the USD.

In the first session of the week, investors traded with optimism, after the worse-than-expected US ISM data for September let traders to think the Fed could pursue a less aggressive monetary policy stance than previously expected. Nevertheless, NY Fed President John Williams said that there is still job to do to curb inflation.

In yesterday's session, investors maintained their appetite for riskier assets, after a drop in the number of job vacancies in the US fueled expectations of a monetary policy pivot from the Fed. In this direction, the central bank of Australia decided to hike rates by 25bp, slowing down the pace of its tightening.

Monetary policy tightening centered the stage again, with several US Federal Reserve members arguing that interest rates needed to be hiked further and that there were no clear signs of inflation having peaked yet. In the euro area, the accounts of the last ECB meeting revealed a broad-based concern of GC members about current inflation figures.