Investors closed last week trading cautiously, increasing their bets that the jump in inflation is likely to force central banks across advanced economies to deliver a more aggressive withdrawal of monetary stimuli. Financial markets are pricing in by yearend more than 150 bp hikes in the US and more than 50 bp hikes in the eurozone.
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Financial markets were mixed yesterday. US Treasury yields were flat after the OECD lowered its global growth outlook from 3.1% to 2.9% in 2025, citing concerns over Trump's trade war and its impact on the US economy. JOLTS data showed the resilience of the US labour market in April, while new orders from businesses fell, possibly due to frontloading in Q1.
Central banks took center stage, with a broadly hawkish tilt across major economies. The ECB left the depo rate unchanged at 2.00%, as expected, but highlighted stagflationary risks stemming from the Middle East conflict. Euro area sovereign yields edged higher, as markets now fully price in two rate hikes in 2026, while the euro recovered and equities declined sharply.
Yesterday, global financial markets delivered a mixed performance, shaped by judicial developments in the United States and uneven economic data. In the US, an initial court ruling blocked most of President Trump’s tariffs, only for a federal appeals court to later reinstate them, injecting renewed uncertainty into ongoing trade negotiations.
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Perspectives 2019
The main stock markets in advanced and emerging economies registered gains, with the exception of the Portuguese PSI and the Shanghai Index.
Wednesday's session had a more mixed tone compared to Tuesday's broad selloff, with U.S. equities staging a partial recovery. European equities, however, remained under pressure, weighed down by higher sovereign yields. In FX markets, the yen strengthened against the dollar amid hawkish BoJ speak, while the euro remained roughly stable.
Yesterday's session was marked by a risk-off sentiment, as energy prices continued to rise amid escalating tensions in the Middle East, with the US and Iran exchanging strikes with reportedly the highest intensity since the ceasefire was started in early April. Brent crude prices were up nearly 2% and TTF natural gas prices were up 2.5%.
Yesterday's session was once again dominated by the uncertainty around the 2019's Italian fiscal deficit. In this context, the Italian risk premium continued to rise and exceeded the maximums reached in May (above 300bp).
Mixed session amid little macro data and a lack of trade negotiations news to trade on. Sovereign bond yields edged slightly higher on both sides of the Atlantic, with US yields receiving a boost by hawkish remarks from Fed officials warning of the potential impacts of tariffs on prices. The 2-year Treasury yield closed above 4% for the time since late March.
Market sentiment turned positive following the release of robust data confirming the resilience of the US economy and continued inflation containment in the euro area. Equity markets posted broad-based gains, led by cyclical sectors.
Investors ended the week on an upbeat note. Euro area PMIs suggested activity expanded during October (the composite index rose from 51.2 to 52.2), leading to higher sovereign yields and gains in the main equity indices. Cooler-than-expected U.S. inflation reinforced expectations of a Fed interest rate cut and boosted stock markets. The EURUSD held close to 1.16.
Global stocks rebounded and sovereign yields continued to decline as investors cemented their expectations for rate cuts ahead of the Fed's next week meeting. The USD weakened moderately across other major currencies and gold prices continued to surge.
In the last session of the week, investors' sentiment improved and their preference for riskier assets rose after the sharp sell-off sessions that preceded Friday.
Financial markets started the week with a risk-off session where investors' preference for safe assets rose as they assessed the impact of the sanctions imposed on Russia.
Markets remained on a risk-on mode on Tuesday, with expectations of an imminent reopening of the Strait of Hormuz. Brent crude prices dropped 5% for the second consecutive session, settling at $79/bbl, a minimum since early March. TTF natural gas fell by nearly 2%, closing the session just below EUR 42/MWh, while the EUR/USD remained stable around 1,16.
Financial markets ended the day with mixed results, as stronger-than-expected inflation data in both the U.S. and China reinforced investors’ fears about the persistency of the pickup in prices.
US inflation surprised slightly to the downside, with headline CPI easing to 2.4% yoy (vs. 2.5% expected), down from 2.7% in December. The softer reading boosted expectations of further Fed easing, with money markets now pricing a 50% probability of a third 25bp rate cut in 2026. US Treasury yields declined by around 5bp across the curve.
Markets pared risk aversion in the final session of the week. While August U.S. inflation figures reinforced market-implied odds of a Fed rate hike as soon as this week (to 88% from 72% on Thursday), stock markets closed higher across Europe and the U.S. as oil and gas retreated from their weekly highs.
Financial markets recorded a positive start of the week, as investors increased the likelihood that the Fed will postpone the decision about when to start tapering its asset purchases.