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Investors ended the week with cautious optimism, with equity indices rising across Europe and emerging markets but with mixed results in the US. Bank shares continued to outperform, reflecting expectations of a more aggressive interest rate normalization in advanced economies.

In yesterday's session, investors traded with mixed optimism as they continued to digest inflation data for the US, which might have peaked in March. On monetary policy, the Bank of Canada hiked rates by 50bp to 1% and said it would allow bonds to roll off as they mature. Today's focus will be on the ECB meeting.

Investors started the week with no clear direction, as traders digested mixed signals from the GDP data in China and corporate results in the US. Financial markets were closed across Europe, Australia and Hong Kong.

Financial markets started the week with mixed results, as investors weighted out positive corporate earnings results with downward revisions in the growth economic outlook and a new round of hawkish commentary by some Fed officials (Charles Evans from the Chicago Fed and James Bullard from St. Louis).

Investors turned more positive during a risk-on session on Tuesday. The key themes remained the potential moderation of interest rate hikes by central banks, COVID outbreaks in China and volatility in energy markets.

Investors continued to trade with a positive mood ahead of the Thanksgiving holiday in the US (markets will remain closed today). Hopes that central banks could allow less tightening were reinforced by feeble sentiment data and the minutes of the last Fed meeting, where a “substantial majority” of officials backed reducing the pace of rate hikes.

In the last session of the week, investors weighed better-than-expected economic data in the euro area with mixed signals from central banks about the pace of rate hikes in the coming meetings, including from ECB member Schnabel.

A speech by the president of the Federal Reserve, reinforcing the expectation that the central bank will hike rates by 50bp in December, centered the stage in yesterday’s session. In the euro area, headline inflation decreased in November from 10.6% to 10.0% y/y while the core measure remained unchanged at 5.0%.

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 week started in a subdued mood in financial markets, with investors still assessing the implications of the patient approach of central banks on monetary policy. Yesterday, ECB member de Cos followed previous comments from Wunsch and Holzmann and said that it is premature to talk about interest rate cuts.

Investors continued to trade cautiously yesterday amid messages from central banks signaling the end of the interest rates hiking cycle. Nevertheless, Christine Lagarde said that more evidence is needed to be sure that inflation returns sustainably to the 2% target.

Investors started the week on a downbeat note, with sovereign bond yields falling across the board on both sides of the Atlantic, as expectations grew that major central banks may be done with interest rate hikes. In the Eurozone, however, Lagarde stressed that strong wage growth does not yet allow the ECB to declare victory over inflation.

In Tuesday’s session, investors continued to focus on the narrative that US growth is slowing and that the next move by major central banks will be to cut interest rates at some point next year. This extended the market’s risk-on sentiment of recent weeks, with government bond yields falling across the board and major equity indices rising.

Government bond yields extended their losses across the board on Wednesday as investors continued to focus on future interest rate cuts by major central banks. These expectations were boosted by upwardly revised Q3 US GDP growth figures and better-than-expected November inflation figures in Germany and Spain.

Euro area and US sovereign bond yields continued to fall during Friday's session as investors continue to expect interest rate cuts by mid-2024. Speaking last Friday, Federal Reserve chair Jerome Powell remarked that policy is "well into restrictive territoy" further fueling the rally in bond markets.

Markets took a pause after last week’s rally which brought the main stock indices to post their best monthly advance in years, and sovereign bond yields their largest monthly cuts in two years. Investors have now turned cautious ahead of this week’s US employment data while still pricing in the likelihood of interest rate cuts as soon as March 2024.

Investors started the week on a subdued note as they await key central bank meetings and data releases this week. Sovereign bond yields were little changed ahead of today's US CPI report. Yesterday, the NY Fed's 1-year inflation expectations index for November extended its decline to 3.4% showing the impact of interest rate hikes.

US November CPI report came mostly in line with expectations: prices grew 0.1% MoM (vs. 0.0% expected) and 3.1% YoY (as expected) down from 3.2% in October, reinforcing the view the Fed will leave rates unchanged at its meeting today. The lack of surprises left markets rather muted, with treasury yields flat and stock indices slightly advancing.

Yesterday’s FOMC meeting boosted investor sentiment as the Fed sent a strong signal that the hiking cycle is over and that its members expect at least two rate cuts in 2024 (according to the median of the Dot-plot projections). This caused government bond yields to fall across the board, especially US Treasuries.

The ECB's caution regarding a pivot in its hiking cycle weighed on investors in yesterday's session. Lagarde's press conference appeared hawkish in contrast to Powell's and the Fed's dot plot on Wednesday, which cooled market expectations for rate cuts in 2024 in both sides of the Atlantic.