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In the last session of the week, investors’ expectations on additional interest rate hikes by the US Federal Reserve were seen as more probable. That, together with debt ceiling concerns and an increase of inflation expectations seen in the University of Michigan survey, pushed US Treasury yields higher.

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.

In yesterday’s session, US debt ceiling negotiations continued to center the stage in financial markets as President Joe Biden and Republican speaker of the House Kevin McCarthy keep pushing for a deal to avoid a default on sovereign bonds. Biden specified that negotiations are on the fiscal budget, not on whether the US will pay or not its debt.

Markets ended the week on a constructive tone, with news of diplomatic negotiations in the U.S.-Iran conflict driving oil and gas prices lower and feeding into risk-on sentiment. Stocks rallied on both sides of the Atlantic, led by gains in the technology, financial, and consumer sectors. Early this morning, however, the pattern reversed.

Tensions around the US debt ceiling negotiations continued weighting on investors’ sentiment. Even though the opposition leader, McCarthy, signaled optimism about a deal after the latest round of talks, rating agency Fitch Ratings warned the nation’s AAA rating may be downgraded due to the political standoff.

Negotiations to raise the US debt ceiling progressed over the course of Thursday, with both the Government and the opposition party suggesting talks were in a better place, though not finalised yet. Should a deal be reached soon, Parliament would have to approve it before June 1, the deadline stated by Treasury Secretary to run out of cash.

Yesterday's session was a volatile one, as news from progress in the negotiations around the conflict in the Middle East came in both directions, moving energy prices and the rest of asset prices. Brent prices closed up by more than 2%, at USD 112/barrel, while TTF prices ended the session flat at EUR 50/MWh.

With no meaningful progress in the peace negotiations between the US and Iran, market focus shifted toward macroeconomic data releases and earnings results. Investors also remained attentive to President Trump’s arrival in China for talks with President Xi Jinping, where discussions are expected to focus on the implications of the Middle East conflict and on efforts to ease trade tensions between the two countries.

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.

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%.

Investors traded in a subdued mood on Tuesday, as they awaited today’s US CPI report and digested the latest dovish comments from several Fed officials on Monday: Bostic, who said that inflation could be brought back to target without further rate hikes; and Daly, who said the Fed was approaching «the last part» of its hiking cycle.

Investors started the week trading with a cautious mood, still digesting the mixed US employment report released on Friday and awaiting tomorrow's key CPI inflation data. Also, comments from San Francisco Federal Reserve President Mary Daly pointed to further interest rate increases even if signaling the end of the hiking cycle is nearing.

In yesterday’s session, investor sentiment was soured by data showing the resilience of the US economy and its labour market. Private surveys showed that US companies added the most jobs in over a year in June, and the services sector expanded faster than expected, which investors fear will allow the Fed to continue raising rates.

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.

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.

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.

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 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.