Investors continued trading in a risk-on mood yesterday as the vaccination process continues, and, symbolically, the number of people vaccinated across the world reaches the number of COVID-19 cases.
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Precaution continued to set the tone during the first session of the week, with investor sentiment negatively affected by the ongoing deterioration of COVID infections across China and the likely imposition of more restrictions.
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.
During Friday's session, sentiment moderated following the recent risk-on momentum, as investors headed into the weekend focused on developments in the Middle East and the prospect of US–Iran talks. Brent crude traded around USD 95/barrel, while TTF gas declined by around 5% to €43/MWh.
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.
Markets ended last week on a high note on Friday as it became apparent that the US elections were nearing a result. The S&P 500 gained 7.3% over the week and US sovereign yields rose sharply. The election result was finally called on Saturday, in favor of Joe Biden, but Donald Trump announced that he would contest the results.
In yesterday's session, investors traded with a positive tone as the Federal Reserve kept its monetary policy unchanged and vote counting continued in the US. The Democrat candidate, Joe Biden, has taken the lead and potentially winning one more state would be sufficient for him to become the US President.
Financial markets started the first session of the week with modest gains, focusing on the release of positive earnings results for Q3 (around 80% of the S&P listed firms have reported better-than-expected results) and bringing the S&P to a new record high. In Washington, Democrats lawmakers stepped closer to a deal on Biden’s fiscal agenda.
The minutes of the Fed's June meeting showed that the decision to hold interest rates steady in June was not unanimous, and that most officials expected further rate hikes would be necessary, as the dot plot had shown. Also yesterday, US factory orders data for May came in below expectations, but still showed growth.
In yesterday’s session investors traded cautiously amid mixed corporate profits reports and lingering worries of persistent inflationary pressures, after the upside surprise in the CPI March data in the UK. Also, the US Beige Book released yesterday stated that the US economy stalled in recent weeks, with slowing hiring and inflation.
In yesterday’s session, investors continued to trade with a risk aversion mood, extending recent losses across the main equity markets. In its Beige Book, the Fed noted that economic growth is downshifting due to the spread of the Delta variant, while several Asian countries are extending restrictions to control the outbreak.
Investors started the week trading with a cautious approach. On the positive side, sentiment continued to be supported by expectations that the Chinese government could relax some of its COVID zero policy. On the opposite direction, data showed further weakness in China’s economic recovery.
Investors continued to err on the side of caution on Wednesday, taking position ahead of the release of the Q1 GDP flash estimates for the US today and across the eurozone tomorrow.
Financial markets ended the week on a positive note, supported by stronger-than-expected employment data in the US (non-farm payrolls rose by 531k in October while the jobless rate edged down by 0.2 p.p. to 4.6%) and the approval by lawmakers in Washington of the $1.2tn infrastructure spending bill.
A risk-on session was recorded across markets on Thursday after the softer-than-expected inflation data in the US and the uptick in new weekly jobless claims reinforced hopes for a slowdown in the pace of rate hikes by the Fed.
Markets saw high commodity prices and elevated sovereign yields throughout August, driven by the ongoing conflict in the Middle East, pressure on inflation expectations, and hawkish central bank rhetoric. Yet stocks trended higher on the back of a solid earnings season, while the USD weakened against the main currencies.
In yesterday’s session, the focus was still on monetary policy decisions, as the ECB decided to raise the official interest rates by 25 bp (depo and refi rate at 3.25% and 3.75%, respectively). Despite lowering the pace of rate increases, Lagarde clearly signaled that the ECB cannot pause rate hikes yet as inflation is still too much elevated.
In yesterday's session, investors traded with an optimistic mood as they digested the Fed's decision to initiate the tapering of net asset purchases this month and the dovish confirmation that it will keep its policy interest rates unchanged for the foreseeable future.
A larger-than-expected decline in US inflation in May, from 4.9% yoy to 4.0%, increased the odds investors attach to a pause in the Federal Reserve interest rate hikes at today’s meeting. Nevertheless, core inflation declined by less than expected, from 5.5% yoy to 5.3%, pushing the Fed to, at the very least, maintain a hawkish tone.
Monday's stock market rally went into reverse in yesterday's session, as investors weighed the prospects for the coronavirus pandemic and the possibility of further fiscal stimulus in the U.S.