The risk-on mood triggered by trade negotiations continued to support markets but lost some steam in yesterday's session. Sovereign yields rose on the back of a hawkish reading of the ECB's meeting, while euro area and U.S. stocks posted moderate gains with a mixed sectorial performance (European banks rallied on favorable earnings and higher rates).
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Markets seemed to shrug off the U.S. government shutdown in yesterday's session. Global stocks rose and U.S. sovereign yields declined amid weak U.S. labor market data. Euro area sovereign yields were little changed, and the euro held steady at $1.17. Gold also steadied after having rallied in the last few days.
Sentiment recovered in the euro area after a few sessions of cautious trading following the resignation of France’s Prime Minister. Sovereign yields fell and peripheral risk premia narrowed slightly, although France’s remains elevated and above Italy’s. The region’s main equity indices advanced.
Monday’s session extended the risk-on sentiment from Friday. Strong earnings results from US companies and the easing of trade tensions between China and the US boosted global stock markets, with volatility dropping.
As expected, the ECB kept interest rates unchanged (depo at 2%) and reinforced its meeting-by-meeting data-dependent strategy. Euro area sovereign yields edged higher, and equities had a mixed session across the region. On the macro front, euro area GDP grew 0.2% qoq in Q3 (1.3% yoy), up from 0.1% qoq in Q2.
Investors started the week in a mixed mood. US Treasuries rose modestly amid growing divisions within the FOMC, as Miran reiterated the need for aggressive rate cuts, citing what he described as tight financial conditions, while Goolsbee warned against easing prematurely given persistent inflation.
The week started on a risk-off tone. Equities fell across the board, particularly in the US, as several Wall Street CEOs and major banks warned of potential drawdowns and concerns over overstretched valuations. European and Asian indices also declined, albeit more modestly, with Spain’s Ibex closing flat.
Markets traded on an upbeat tone on Wednesday. Sovereign yields rose on both sides of the Atlantic on positive macro news. US Treasuries rose as the ISM index showed services sector activity increased in October to 52.4, an eight-month high. The ADP survey showed job creation remained subdued in October, but surprised positively too (42k vs 30k expected).
Risk appetite surged on Monday, buoyed by expectations that the US government shutdown could end this week after several Democrats broke ranks to support a funding bill. Equity markets rallied on both sides of the Atlantic and tech stocks led the gains, rebounding rom Friday’s losses.
In yesterday’s session, euro area sovereign yields edged lower with little news to trade on, while US treasuries did not trade as bond markets were closed due to Veterans Day holiday. The dollar weakened as investors continued to digest the generalized cautious tone of Fed officials on a rate cut on December, while the Japanese yen hit a nine month low.
Markets had a mixed session. US stocks advanced ahead of Nvidia's earnings report, while most euro area indices retreated. US Treasury yields rose after the BLS announced it will not publish the October and November jobs data before the Fed's next meeting, leading markets to reduce expectations of a rate cut in December to 30%. Euro area sovereign yields were flat.
Markets opened the week on a risk-on tone, as Fed's Waller also favoured a December rate cut, much like Williams had done on Friday. Waller favoured the cut on the basis of a soft and weakening labour market, which pushed US Treasury yields lower and brought market expectations of a cut in December to 75%.
Financial markets had a subdued session on Thursday, with U.S. markets closed for Thanksgiving. In the euro area, sovereign yields edged slightly higher. Minutes from the latest ECB meeting confirmed a cautious stance on rates, though diverging views on inflation risks keep the door open for future cuts.
Financial markets had a mixed session on Wednesday. Eurozone sovereign yields edged higher, with curves steepening and peripheral spreads widening, even as the Ifo index surprised to the downside, signaling weaker business sentiment in Germany. Final CPI figures for November came in a tenth lower in the general year-on-year rate.
Markets rallied on Thursday as US inflation eased more than expected in November (2.6% vs. 3.0% YoY), boosting risk appetite. The moderation may partly reflect delayed data collection due to the recent government shutdown. Separately, initial jobless claims fell by 13,000 last week. Treasury yields dropped and investors' rate-cut expectations for the Fed remained broadly unchanged.
Yesterday's session ended on a mixed tone with relatively small movements, as investors traded cautiously ahead of today's important data releases in the US, particularly Q3 GDP, which will be released today. Sovereign yields barely changed, with a small flattening of the US curve, while European stock indices receded and the US ones ticked higher, pushed by tech firms.
The week began on a cautious note, with US Treasury yields remaining flat, equities posting modest gains, and the US dollar edging lower amid reports that Fed Chair Jerome Powell has been threatened with a criminal indictment related to the costs of a building renovation, which he described as a pretext by President Trump to exert influence over monetary policy.
Markets turned risk-off on Tuesday as Trump renewed tariff threats against Europe linked to his controversial Greenland acquisition proposal. Equity indices fell on both sides of the Atlantic, with the tech-heavy Nasdaq leading losses. Implied volatility rose, pushing the VIX higher.
With the focus on today’s Fed policy rate decision, widely expected to keep interest rates unchanged, euro area government bond yields ended yesterday's session flat, while the US yield curve slightly steepened. Investors will be attentive to any hints given in the FOMC press conference for future rate paths.
Investors kicked off the week on a cautious footing, ahead of the ECB’s meeting later this week, which is widely expected to leave interest rates unchanged (depo rate at 2%), while markets continued to digest Kevin Warsh’s nomination to replace Jerome Powell as Fed Chair. Sentiment was also weighed by the sharp sell-off in precious metals that began late last week.