Investors traded on a cautious note in the first session of the week. U.S. stocks advanced across the board (including the tech-heavy Nasdaq, which had been lagging in the last sessions) while European indices were mixed. In fixed-income markets, yields on U.S. and euro area core sovereign bonds were roughly unchanged.
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Investors ended the week on a cautious note: trading volumes were light and most asset prices were little changed. Sovereign bond yields were largely unchanged in the eurozone, while rising slightly in the US despite most Fed officials who spoke in recent weeks tended to lean towards a pause in the hiking cycle at the September meeting.
Investors ended the week trading with a pessimistic tone amid concerns on the economic outlook and tightening monetary policy. On a positive note, the US consumers' inflation expectations survey (University of Michigan) showed the lowest rate since last September, easing concerns that the Fed could hike rates this week by 100bp.
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.
Volatility remained elevated across financial markets, with investors keeping the focus on the mix of monetary and fiscal policy across advanced economies, more notably in the UK. On the data front, growth in house prices in the US slowed down in July while US consumer confidence improved for a second month in a row in September.
Investors continued to trade with a cautious approach at the start of the week, with risk appetite overshadowed by fears of persistent inflationary pressures and a global recession. UK markets remained in focus, after the pound fell near parity against the USD and bond yields surged as the government reiterated plans to cut taxes.
Risk aversion returned to the fore on Tuesday after CPI inflation surprised to the upside in the US, fueling a new upward revision in investors’ expectations about the pace of monetary policy tightening by the Federal Reserve.
Investors continued to err on the side of caution during the last session of the week, with sentiment impaired by data releases pointing to lingering inflationary pressures and the likely need for further monetary policy tightening.
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 yesterday’s session, investors traded cautiously focusing their attention on the corporate earnings season and being attentive to the monetary policy path ahead and to the geopolitical risks. In this context, yields on sovereign bonds surged in advanced economies, with the 10-treasury getting closer to 5%.
Financial markets had a mixed session on Tuesday. Sovereign bond yields fell on both sides of the Atlantic after a choppy session, driven by US employment figures distorted by the recent shutdown. The data showed job growth rebounded in November, while the unemployment rate rose in October following a methodological change due to the shutdown.
The US Federal Reserve’s meeting centered the stage in a risk-off session, also spurred by the escalation of Russia’s offensive in Ukraine. As expected, the central bank raised policy interest rates by 75 bp while President Jerome Powell said that interest rates will need to stay in restrictive territory for longer, as shown in the dot plot.
In a quiet session due to the President's Day holiday in the US, traders continued to weigh incoming economic data (eg consumer confidence in the eurozone rose to -19 from -20.7) with the hawkish tone from central bank officials. In this context, yields on sovereign bonds ticked up in the euro area, nearing year-to-date highs.
In yesterday's session, investors’ sentiment worsened in the euro area, amid inflationary concerns, while in the U.S. investors focused their attention on a potential breakthrough in negotiations between Democrats and Republicans to extend the debt ceiling and on the better than expected ADP employment report.
Markets ended the week on a weak note, following the release of disappointing employment data in the U.S. (non-farm payrolls rose by 194k in September after 366k in August). The report, however, showed wage growth picking up (4.6% y/y), which reinforced fears that inflationary pressures are building up across the economy.
Investor sentiment ended the week on the up amid positive reports over a potential antiviral drug to treat COVID-19. As risk appetite rose, stocks increased across Europe and the U.S., the USD weakened and commodity prices advanced (in oil markets, the barrel of Brent closed moderately above $43).
Friday´s session was clouded by the risk that geopolitical tensions in the Middle East could escalate further causing a sustained rise in oil prices. On the economic side, US University of Michigan Consumer Sentiment fell from 68 to 63 from last month and China exports fell, although by less than expected by the consensus.
In the first session of the week, investors traded with a risk-off mood amid the escalation of Israeli-Palestinian conflict. In the macroeconomic front there were no relevant data releases.
Financial markets diverged across the Atlantic on Tuesday. In the US, sentiment was supported by optimism around US‑Iran peace talks, despite US missile strikes in southern Iran. In the eurozone, by contrast, the rebound in European benchmark energy prices—Brent crude and TTF natural gas—after a few sessions of relief weighed on investor sentiment.
Investors’ perception that central banks will still need to increase interest rates in this hiking cycle was the main driver in yesterday’s session. The release of the last ECB meeting minutes and the somewhat higher-than-expected September CPI inflation data for the US fueled this expectation.