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Investors ended the week with a mixed session as the US government shutdown, which prevented the release of the employment report, clouded sentiment. Sovereign yields edged lower in the euro area and stocks mostly advanced, while US Treasury yields ended higher, and equities were mostly flat weighed down by the underperformance of tech stocks.

Investors' risk appetite increased on Wednesday as the ADP jobs report for June surprised to the downside and the ISM services report came in below expectations at 48.8. Separately, the release of the latest FOMC minutes showed that Fed officials acknowledged a slight slowdown in the economy as well as easing price pressures.

Yesterday's was a volatile session in the market, driven again by geopolitical developments the Middle East. It started with a risk-off tone, as Iran reportedly suspended its contact with the US in response to the Israelian attacks to Lebanon; however, later news reporting that Hezbollah was ready to agree to a ceasefire switched the market sentiment in late session.

On yesterday's session, markets kept a positive tone, as the US-Iran peace talks progressed and the US Treasury allowed Iranian oil sales, easing supply risks. Oil prices fell more than 3%, the dollar rose slightly, while the pound edged up higher on the announcement of PM's Keir Starmer resignation and the prospect of an orderly leadership transition.

Risk-off sentiment took over yesterday's session. Oil and gas surged amid escalating tensions in the Middle East (eg., the Houthis attacked two Saudi Arabian tankers in the Red Sea), sending global stocks lower and triggering higher sovereign yields across the board. In FX markets, the U.S. dollar index strengthened towards a one-month high.

Wednesday's session delivered a broadly constructive tone, with European equities outperforming their U.S. counterparts in a session dominated by the Fed's rate hike. European indices closed higher across the board while U.S. markets were more mixed, with the S&P 500 eking out modest gains for most of the session before closing lower after the Fed's meeting.

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.

Markets ended the week on a risk-off tone, with sovereign bond yields falling across the board, equities selling off, and the US dollar strengthening (to $1,06 against the euro), as geopolitical tensions rose in the Middle East and investors sought safe-haven assets. Brent rose above $90/barrel as worries about potential supply disruptions mounted.

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.

The last stages of this cycle of monetary policy tightening centered the stage in yesterday’s session as the ECB hiked interest rates by 25bp (depo at 3.75% and refi at 4.25%). Nevertheless, Christine Lagarde said that this might not be the last hike and insisted that interest rates will remain high for a long period of time to break the back of inflation.

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.

Another day of rollercoaster swings across financial markets, following the negative surprise in the inflation report in the US and the upside revisions in investors’ expectations of the pace of monetary policy tightening.

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.

The week started with a strong risk-off move, particularly in the US. In the eurozone, the Sentix index of investor confidence for March hit its highest level since 2021, while German industrial production for January came in above expectations. Sovereign yield curves flattened as the short end declined, while the long end and spreads were broadly flat.

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.

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.

Risk appetite continued to set the tone in the last session of the week, as investors reassessed prospects for less aggressive monetary policy tightening, on the back of reduced inflationary pressures, and took on board mixed results at the start of the Q4 earnings season among large US banks.

Speaking in the second day in Congress, Fed President Powell clarified that no decision had yet been made about the pace of monetary policy tightening, noting that the FOMC would consider higher rate hikes only if the totality of the data pointed in that direction. Before the next meeting, February inflation and employment data will be released.