Markets traded in risk-off mode during Friday's session, with heightened volatility, as investors reacted to the latest social media announcement by the US President regarding its trade agenda. Trump threatened to impose a 50% tariff on the EU and a 25% levy on Apple if the company refused to relocate its manufacturing to the US.
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Volatility continued to dominate across financial markets at the start of the week, fueled by mounting concerns about the health of the global economic recovery, after the release of weaker-than-expected monthly economic indicators for April in China on Monday.
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%.
Thursday’s session saw a mixed performance across assets as investors grappled with a mixed bag of economic data and the latest Fed decision. In the US, Treasury yields were lower after the rise in initial jobless claims and the decline in the Producer Price Index raised investors’ expectations of a Fed rate cut in September.
On Friday, investors traded cautiously as they continued to assess the economic outlook for the main advanced economies. Stock indices rose modestly in the euro area while, in a volatile session, the S&P 500 closed barely flat. Emerging economies’ indices registered solid advances.
Yesterday's announcement of a temporary truce in the trade war between the US and China lifted investors' mood, particularly in US assets. Both countries agreed that for the next 90 days the US will reduce the tariffs it imposed on Chinese imports last month from 145% to 30%, and that Chinese tariffs on US imports will fall from 125% to 10%.
Sovereign bond yields fell for a second consecutive day on both sides of the Atlantic as softer-than-expected job openings data in the US reinforced expectations the Fed will lower rates this year. In the euro area, markets await the ECB tomorrow, which is widely expected to lower interest rates by 25 bp.
The week finished off with a session without any significant movements as inflation figures released on Friday largely aligned with expectations. The US PCE deflator for April came in at 2.7% yoy, as expected. Euro area inflation rose to 2.6% yoy in May, just above the 2.5% expected, although the monthly variation recorded the expected 0.3%.
Yesterday's was another volatile session, with markets assessing the fragility of the recent ceasefire agreement between the US and Iran, as Israel maintains its attacks against Lebanon. Brent crude prices closed higher at USD 96/barrel after briefly touching USD 93 during the session, while TTF natural gas prices closed down -3%.
Yesterday’s session saw increased risk appetite in the euro area following dovish comments from the ECB’s Villeroy, who did not rule out two consecutive interest rate cuts in June and July and sees ample space to lower rates from the current 4% policy level. He also remarked that the Fed’s policy should not affect the ECB’s.
Risk appetite extended across markets during the last session of the week, boosted by signs that inflation in the US may have peaked while consumer spending remained strong at the start of Q2, according to the April’s PCE report.
Investors traded cautiously in yesterday's session and, in the euro area, the major stock indices declined and sovereign yields edged lower. In a panel of central banks in Sintra, Fed's Powell acknowledged that the Fed would have already cut rates this year absent Trump's tariffs, while the ECB's Lagarde stated that inflation is at target in the euro area.
Markets started the week in a mixed mood as investors eye trade negotiations and the central bank meetings in Sintra. Market confidence in Fed rate cuts drove U.S. sovereign yields down, while euro area sovereign yields were little changed. The euro strengthened against the dollar and edged towards $1.18 (a 5-year high).
In yesterday’s session, investors had to weigh mixed economic data indicators, as flash PMIs showed how the manufacturing sector in the euro area weakened slightly in March, deep below the 50-points threshold, while the services index managed to increase (52.9 for the euro area).
Investors turned cautious again on Tuesday as the Israel-Iran conflict continued. US Treasury yields fell ahead of the FOMC meeting, where the Fed is expected to leave rates unchanged as it seeks more clarity on the impact of tariffs. Yesterday's data releases showed a softening US economy in May: retail sales dropped by more than expected (although so-called "core" retail sales increased); import prices remained stable, surprising to the upside; and industrial production fell slightly.
The week kicked off to a mixed start. US Treasury yields rose after Trump announced on the weekend the US will raise tariffs on steel and aluminium (25% to 50%) and accused China of breaching the trade truce agreement. Separately, the ISM and PMI surveys for May showed delivery times increasing, while prices paid by suppliers remained elevated.
Financial markets ended the day with negative results, following the release of disappointing survey sentiment data in both the US (the services ISM fell to 60.1 in June from 64.0 in May) and in Germany (the ZEW sentiment indicator dropped from 79.8 to 63.3). In addition, industrial orders in Germany plummeted in May (-4% m/m).
In a volatile session, investors’ sentiment was clouded by disappointing labour data in the US (new jobless claims unexpectedly rose to 373k during the first week of July) and uncertainty about the evolution of the pandemic. In Europe, the ECB confirmed a decision to modify its inflation target to a symmetric 2%.
Implied volatility declined and stock markets rose across the board in the first session of the week as investors digested the truce agreed by Presidents Trump and Xi in the G20's meeting.
Yesterday’s session was characterised by heightened investor caution and market volatility amid escalating geopolitical tensions in the Middle East. The intensification of hostilities between Israel and Iran dominated the headlines, while trade sentiment was further unsettled by Trump’s warning of potential unilateral tariffs to be announced within the next fortnight.