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In the last session of the week, financial markets’ sentiment bounced from the previous day plunge and stock indices and sovereign yields rose across the board.

In yesterday’s session, investors traded with a risk-on mood as the US Senate passed a bill that averted a government shutdown. The bill still has yet to pass the House of Representatives, but if it succeeds, the Federal government will be able to fund itself until early March.

In yesterday’s session, global stock markets advanced as investors increased risk appetite following reports about a Chinese stimulus to support the local stock market, a better-than-expected earnings season in the U.S. so far, and a favorable US PMI reading. Sovereign bond yields edged lower in the euro area and slightly rose in the U.S.

Financial markets started the week on a risk-off mood, as the Russian gas cut off worsened the European energy crisis and the region’s economic outlook. 

Financial markets' sentiment improved in the first session of the week. Investors perceived that monetary and financial authorities are going to act in order to offset the negative impact that coronavirus can have on the economy.

Investors ended the week with mixed results, with sentiment supported by data showing employment growth in the US slowed down in August, in line with expectations, while the jobless rate rose by 0.2 p. p. to 3.7%. In the eurozone, producer prices (PPI) rose by 37.9% y/y in July, fueling concerns that inflationary pressures are building up.

Concerns about the spread and the economic impact of the coronavirus rattled markets for a second day in a row (following a rapid increase in cases in countries other than China).

Risk aversion continued to set the tone across markets on Thursday, following the imposition of lockdown measures in some big urban areas in China. In the US, new weekly jobless claims and the manufacturing ISM survey surprised positively, which, in turn, exacerbated fears among investors of more aggressive interest rate hikes.

During a volatile session, financial markets closed with mixed results, balancing out another upside surprise in HICP inflation data in the eurozone (up by 9.1% y/y in August) with signs that job creation in the US may have moderated in August (according to the ADP survey). 

In a session with no big economic data releases, except for the -1.1% m/m December retail sales in the euro area, investors reassessed their expectation on the upcoming central bank interest rate cuts.

Optimism about the economic recovery favored a rotation into cyclical equities as investors digested the U.S. Senate's approval of Biden's $1.9tn fiscal package. European stocks rose across the board while tech-related stocks sold off and weighed on the U.S.' Nasdaq and S&P 500 benchmarks.

Investors continued to trade with caution at the start of the week, still digesting the hawkish rhetoric at Jackson Hole conference last weekend and taking on board mixed signals from ECB officials, after chief economist Philip Lane cautioned against outsized interest rate hikes, calling instead for a "steady pace" until the end of its hiking cycle.

Investors traded in a positive mood as the OECD signaled a brighter economic outlook. According to its updated forecasts, the world economy is set to grow by 5.6% and 4.0% in 2021 and 2022. The OECD estimates that spillovers from the U.S. fiscal stimulus will add more than 1pp to global growth.

Investor sentiment improved in the first session of the week boosted by better-than-expected business sentiment indicators in advanced economies and a stabilization of investor's concerns over the coronavirus impact on the economy.

Investors continued to readjust their expectations about the future pace of monetary policy tightening, after data showed real GDP fell by 0.2% q/q in the US in Q2, the second consecutive quarterly decline.

Sentiment deteriorated across financial markets on Wednesday, as investors digested the hawkish narrative in the accounts of the Fed’s latest meeting and the likely new imposition of sanctions against Russia.

At its meeting yesterday, the Federal Reserve kept interest rates on hold at 5.25-5.50%, as expected, and the Fed's policy statement kept its economic assessment and policy guidance without changes. Powell signaled the next move is unlikely to be an interest rate hike as the Fed is still leaning towards an eventual cut, despite needing greater confidence to do so.

Investors traded cautiously in yesterday’s session as they await key economic releases this week, including euro area 1Q GDP (today), which is expected to show the economy grew 0.2% yoy, euro area April inflation (today) expected to stay at 2.4% yoy, and the Fed’s FOMC meeting tomorrow, where markets anticipate no changes to the Fed’s target rate.

In yesterday's session financial markets experienced risk aversion flows. Despite the positive results presented by some companies, the increase in COVID cases around the globe led investors to move from equities tied to the economic cycle to safer assets such as sovereign bonds, gold and safe haven currencies.

In yesterday's session investors continued to assess the Fed's next move regarding interest rates following Wednesday's FOMC meeting. In particular, markets seem to have taken Powell's downplay of the possibility of hiking rates given the recent inflation figures as a confirmation that the next move will be a cut.