Stocks slid in Europe amid rising concerns over delays to the vaccine rollout in the continent and the economic impact of a new strain of COVID-19. A vaccine produced by AstraZeneca and Oxford University was approved by the EU's regulator on Friday but difficulties in delivering shipments to the bloc are leading to rising tensions.
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Financial markets started the week with a mixed tone in a session with the US markets closed for Martin Luther King, Jr. Day. Investors traded cautiously as they weighed rising COVID number across the globe, Joe Biden's stimulus plan and Q4 GDP numbers in China. (+2.6 qoq, +6.5% yoy, leaving 2020’s annual growth at 2.3%).
The accommodative monetary policy stance confirmed in yesterday's Federal Reserve's meeting and the better-than-expected December flash PMIs in the euro area kept optimism among investors. In particular, the manufacturing indices were expected to fall but managed to increase, and the services indices rose but remained below 50.
In the last session of the week, investor sentiment worsened as uncertainty over the fiscal stimulus in the US rose and the EU-UK trade negotiations seemed to be heading towards a no-deal brexit.
Economic sentiment data and new advances in a vaccine treatment for COVID-19 were the main drivers of a mixed session in financial markets. On the one hand, the University of Oxford and AstraZeneca Plc said that their vaccine prevented 70% of the participants from falling ill. This effectiveness rises to 90% with an alternative treatment.
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.
European sovereign yields edged lower in yesterday's trading session following a speech by ECB chief Christine Lagarde in which she signalled further monetary easing. In her speech, Lagarde emphasised the importance of the duration, and not only the size, of monetary accomodation, and identified PEPP and TLTROs as the main crisis tools.
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.
The Federal Reserve left interest rates unchanged at 5.25-5.50%, as expected, and hinted that if inflation readings continue in the right direction, a September rate cut "could be on the table." Markets reaffirmed their expectation of three 25bp interest rate cuts for the remainder of 2024. Treasury yields fell by +10bp, and US equities rallied.
Stock markets posted gains in the last session of the week. In the U.S., the S&P 500 advanced by +0.1 percent after swinging back from early-trading losses, while in Europe the main indices registered more solid gains.
Markets ended the week with a mixed session. Optimism over trade deals continued to support U.S. equity markets, sending the S&P 500 and the Nasdaq to new record highs, while euro area stocks ended mostly lower as investors traded cautiously awaiting news of a trade deal. Sovereign yields were little changed after the ECB meeting and Trump's visit to the Fed.
The Federal Reserve held the federal funds rate at 4,25%-4,50%, citing solid labor market conditions and above-target inflation. Financial markets made a hawkish reading of the Fed's accompanying statement and pushed back expectations of the next cut from September to October. The probability of a second cut in December dropped from 80% to 40%.
Renewed fears about inflation and fiscal discipline prompted a broad sovereign bond sell-off. The Japanese 20-year bond yield reached levels not seen since 1999, the 30-year UK yield touched highs from 1998, and the yields on the 30-year US Treasury came close to 5%. Risk-off sentiment spread to global stock markets which pared losses during the session.
Pessimism about a breakthrough in trade tensions drove global stocks down in the first session of the week. In the U.S., losses were exacerbated by weakness in the technology sector and the major indices were down by more than 1.5%.
Markets were mixed in yesterday's session. Global stock markets advanced and U.S. sovereign yields nudged down as the U.S. CPI report did not depress investor expectations about Fed cuts. In Europe, the euro strengthened on the back of a hawkish reading of the ECB's meeting, German sovereign yields nudged up but peripheral spreads ticked down.
Investors traded cautiously during yesterday's session ahead of the FOMC meeting today, in which the Fed is expected to lower interest rates by 25bp (see our take here). US Treasury yields edged down, euro area sovereign yields were flat, and stocks fell on both sides of the Atlantic. The euro rose against the dollar to its highest in 4 years, close to 1.187.
In the last trading session before Christmas, stock markets declined and long-term sovereign yields remained stable (with the exception of Portugal, whose risk premium undid part of the week's strong decline as investors are still calibrating the implications of the improved sovereign rating)
In the first trading session of the year, stock markets rose in the U.S. and they were mixed in Europe, declining in core countries and advancing in the Euro Area periphery.
Most of the developed stock markets kept registering small gains yesterday while yields on sovereign bonds picked up. In the U.S., the yield on the 10-year Treasury increased by 7 basis points and reached 2.55% for the first time in more than 9 months.
Markets were mixed in yesterday's session as the U.S. government shutdown clouded data releases. Technology equities drove the U.S.' Nasdaq to record highs, while the S&P 500 was barely changed and euro area stocks were mixed. Sovereign yields nudged down and the USD inched higher. Brent oil prices continued to fall ahead of the weekend's OPEC+ meeting.