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As widely expected by markets, the Federal Reserve left the fed funds rate unchanged at 4.25%-4.50% range. The Fed rebalanced its scenario towards higher inflation and lower growth, while the median dot plot again signaled two rate reductions by the end of this year, sending US Treasury yields lower, boosting US equities and strengthening the dollar.

Generalized risk-off sentiment during yesterday's session following news that President Trump would impose tariffs on the automotive sector by the end of the day, which he finally did (25% on all finished auto imports). Stock markets fell sharply on both sides of the Atlantic, dragged lower by industrial stocks. The dollar strengthened to $1.07 against the euro.

Yesterday's session showed a risk-on sentiment, after news of Iran reportedly reviewing a peace proposal from the US increased the expectations of the conflict ending in the short term. Energy prices slid more than 2%, but have rebounded as of this morning as the strikes continue while the two countries review the terms.

Investors are starting the year cautiously as risk appetite seems to have eased over the holidays. As central bank officials tried to push market expectations of imminent rate cuts, although these expectations remain anchored in March for the Fed and April for the ECB, government bond yields rose across the board, particularly in the euro area.

In yesterday’s session, a mixed release of February’s flash PMIs and a patient tone on inflation from the ECB, according to the last meeting minutes, were the main drivers in financial markets. Sovereign yields edged down in the euro area while increasing in the short end of the US treasury curve. Stock indices managed to advance across the board.

Investors remained worried about the escalation on the Russia-Ukraine crisis and volatility in financial markets continued to increase. Yesterday, the US announced sanctions against Russia while the EU and UK signaled they would take similar actions if there are no changes on the Russia stance on Ukraine.

Stock markets edged higher and sovereign bond yields fell modestly in the US and the euro area as investors slightly increased their risk apetite ahead central bank decisions from the ECB and the BOJ, US 4Q GDP and PCE deflator later this week, as well as further earings reports in the US market.

Risk-off session to end the week, as concerns about high valuations in the technology sector and doubts on whether the Federal Reserve will lower rates in December, weighed on investor sentiment. Stocks sold off in the euro area and ended flat in the US, albeit having started the session with losses.

In the first session of the week, investors remained concerned about the developments in Ukraine and mounting inflationary pressures in advanced economies. Their expectation for a tighter monetary policy from the ECB and the Federal Reserve pushed interest rates up.

Risk appetite deteriorated on Thursday. Sovereign yields fell in the US after a private report (the Challenger index) showed the US economy shed more jobs than expected in October, reportedly due to AI-driven layoffs. Legal uncertainty around Trump tariffs added pressure, as Supreme Court justices questioned their validity during an ongoing hearing. The move came despite Fed officials speaking on the day pushed back against rate cuts, citing inflation risks and the lack of official data.

Markets kicked off the week with a tranquil session ahead of a week full of central bank meetings, starting with the Bank of Japan today, and continuing with the Fed and the BoE later on. In this context, sovereign bond yields slightly rose across the board, while equities advanced modestly in the US led by tech stocks, and were mixed in the euro area.

In the last session of the week, the awaited release of the September US employment report changed investors’ expectations of the path of interest ahead. Non-farm payrolls increased by a 336k, notably above expectations, and the two previous months were revised by 119k higher. The unemployment rate remained unchanged at 3.8%.

Risk appetite continued to set the tone during the last session of the week, with investors still assessing the resilience in economic indicators and the potential implications for monetary policy decisions ahead. This week, Fed (Wednesday), ECB and BoE (Thursday) will hold their first monetary policy meetings of the year.

Investor sentiment diverged slightly on both sides of the Atlantic at the start of the week. In the US, the ISM survey showed a manufacturing sector close to recovery while Fed's Bowman gave hawkish signals on future interest rates. This pushed Treasury yields higher while equities fared slightly better, with the Nasdaq up and the S&P500 flat.

In the last session of the week, investors continued to digest the patient approach for the monetary policy ahead expressed by ECB and US Federal Reserve officials. For example, San Francisco Fed President Mary C. Daly said that the Fed could take its time to do things right, signaling that no further rate hikes are in sight for the moment.

The announcement of a U.S. - Japan trade deal and hopes of a deal between the EU and the U.S. unleashed investors' risk-on sentiment in yesterday's session. Global stock markets rallied and sovereign yields declined across the board. Safe-haven assets (such as gold and the CHF) retreated while the EUR strengthened towards $1.18.

In the last session of the week, investors' recession fears increased following the worse-than-expected economic sentiment data. In particular, July's Composite PMIs for the euro area and the US fell below the 50 points threshold, with decreases in both the services and manufacturing indices.

Investors started the week with no clear direction, with all eyes focusing on the release of the January CPI inflation print in the US today, where the consensus (according to Bloomberg) expects headline inflation to ease to 6.2% y/y (from 6.5% in December). The second release of Q4 GDP in the eurozone is also published today.