With little macro news to trade on, markets had a somewhat quiet session. Sovereign yields were mostly flat around the largest economies, with the exception of the US, where an increase in supply of government bonds drove long-term yields slightly higher. The dollar strengthened, following Fed's chair Powell cautious comments regarding future easing.
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Concerns over the US fiscal stance and debt burden—intensified by recent credit rating downgrades and ongoing tax bill negotiations in Washington—weighed on US financial assets. US Treasury yields rose, particularly on the longer end of the curve, while US stocks fell by more than 1.5%. The US dollar weakened, trading around 1.13 against the euro.
The week ended with markets trading without a clear direction as investors continued to monitor central bank officials' speeches to adjust their expectations of the timing of the first interest rate cuts, and as they awaited key economic data to be released this week.
Italian politics and European natural gas developments centered the stage in yesterday’s session. On the one hand, Draghi’s coalition government failed to pass the confidence vote, increasing the odds of snap elections this autumn.
Investors kicked off the week with a risk-on session driven by optimism that China and the U.S. will announce a trade deal as Trump and Xi Jinping are set to meet at a summit in South Korea. Global stocks advanced, with the S&P 500 hitting a new all-time high, and the Ibex-35 surpassing its 2007 record. The dollar weakened and gold prices fell below $4,100/ounce.
Investors continued to trade with cautious on Wednesday, taking on board mixed economic data and the hawkish signals in the minutes of the last meeting by the Federal Reserve. European natural gas prices continued to edge higher, despite the intervention by Norway’s government to end an energy workers’ strike.
In yesterday’ session, investors continued to digest this week’s US CPI report, which showed the “last mile” of bringing inflation back to target is proving to be the hardest. Markets were mixed, with sovereign bond yields advancing modestly on both sides of the Atlantic, while equities posted slight gains in the euro area and small losses in the US.
Markets were mixed in the first session of the week. Stocks advanced in Asia and Europe but retreated in the U.S, where financials weighed on the main benchmarks as investors assessed potential losses from their exposure to Archegos Capital Management, a hedge fund that had failed to meet margin calls.
In yesterday's session, stock volatility declined and investors traded with cautious optimism. Federal Reserve officials reiterated their intention to keep monetary policy unchanged until the economic recovery has been fully completed. Then, the exit of the stimulus would be very gradual and with great transparency.
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%.
Financial markets extended their slide as the World Health Organization declared the coronavirus outbreak a pandemic, while political assurances to cushion its impact failed to raise investors' sentiment (Angela Merkel pledged to do "whatever is necessary" to bolster the economy while the Trump administration promised a "major" stimulus).
Investors traded with a positive tone in yesterday's session as March PMI data surprised on the upside in most regions, particularly in the euro area (Composite Index 52.5 vs 48.8 in February). The advance was more robust in the manufacturing sector, although the services index also increased.
In the last session of the week, investors traded with a moderately optimistic tone amid economic data releases that offered mixed signals on the monetary policy path ahead. On the one hand, the US ISM manufacturing index fell from 49.1 to 47.8 (49.5 expected), with employment and new orders subcomponents decreasing.
In the last session of the week, investors focused their attention on the ECB and Fed officials’ speeches, which tried to push back against the expectation for early interest rate cuts.
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.
Financial markets started the week with a risk-on session, as fears about the risk that the spread of the omicron variant could lead to more severe restrictions eased. In addition, China's central bank said it would cut the amount of cash that banks must hold in reserve, releasing 1.2 trillion yuan in long-term liquidity.
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.
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.
European equities performed well on Thursday after the Federal Reserve raised its growth forecast for the US, and the Eurostoxx50 rose 0.5%. Banks and automakers led the gains, as they are favored by rising market interest rates.
In the last session of the week, investors traded cautiously in Europe amid dramatic economic sentiment data in Germany (Ifo sentiment fell to the lowest recorded level) and the absence of a clear EU-wide proposal to fund the recovery in Thursday’s European Council meeting.