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Yesterday’s session saw global equity markets mostly lower and government bond yields rising as investors continued to digest the “higher for longer” interest rate narrative and some weaker than expected US economic data releases.

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.

Risk-off sentiment took over the market yesterday after the US JOLTS report showed an unexpected rise in job openings in August, which could support further rate hikes by the Fed, although comments from Fed officials on the day were mixed, with Mester leaning towards a hike at the upcoming meeting and Bostic opting to hold.

In yesterday’s session investors traded cautiously as they awaited today’s release of September US employment report, which should give further signs for the future path of interest rates. Weekly US unemployment claims, released yesterday, ticked up modestly as expected and set the stage for today’s data.

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%.

Investors’ concerns over economic growth outlook ahead, and the decrease in the probability of an additional interest rate hike from the US Federal Reserve this year were the main drivers in yesterday’s session.  

Investors’ perception that  central banks will still need to increase interest rates in this hiking cycle was the main driver in yesterday’s session. The release of the last ECB meeting minutes and the somewhat higher-than-expected September CPI inflation data for the US fueled this expectation.

Solid US economic data released yesterday showed a still resilient economy reinforcing the the case for the Federal Reserve to keep interest rates higher for longer. September US industrial production rose to the highest level in nearly five years to 103.6 and retail sales increased 0.7%, up from 0.6% beating expectations.

In yesterday’s session, investors traded with mixed sentiment as they navigate through heightened tensions in the Middle East and a continued rhetoric of “higher for longer interest rates” supported by strong US economic data. President Biden arrived in Israel but has not been able to achieve major diplomatic breakthroughs to calm markets.

In the last session of the week, investors traded with a risk-off mood amid fears of a escalating conflict in the Middle East. The VIX index, despite remaining at historically moderate levels, reached its highest level since March and stock indices declined across the globe.

The week started off with a volatile session as markets await key economic data this week (PMIs for advanced economies and US 3Q GDP), 3Q euro area Bank Lending Survey, the ECB's rate decision, further 3Q earnings, and news from the Middle East.

In yesterday’s session, investors traded cautiously focusing their attention on the corporate earnings season and being attentive to the monetary policy path ahead and to the geopolitical risks. In this context, yields on sovereign bonds surged in advanced economies, with the 10-treasury getting closer to 5%.

Volatility rose during the last session of the week amid heightened tensions in the Middle East, mixed corporate earnings, and expectations of the FOMC meeting later this week. Stocks fell across the globe, with US and European stock indices entering “correction” territory after falling 10%  their most recent peak in July.

In yesterday's session, expectations on monetary policy continued to center the stage in financial markets. In particular, Jerome Powell expressed, in similar words than at the last FOMC meeting, that official interest rates can be hiked again if needed and warned that a few months of good economic data should not mislead Fed members. 

Financial markets rallied globally following lower-than-expected US consumer prices. October CPI was unchanged m/m from September (vs. 0.1% expected) and rose 3.2% y/y (vs. 3.3% expected), down from September’s 3.7%. The market now expects the Fed to cut rates in May, ahead of June as was priced before the release of inflation data.

Yesterday markets took a pause following Tuesday’s strong rally. Investors continue to price in the end of the interest rate hiking cycle while still digesting new economic data. US October retail sales slowed in October by less than expected (-0.1% m/m vs. -0.3%), suggesting some resiliency in consumption and reinforcing the idea of a soft-landing.

In yesterday's session sovereign bonds took center stage once again. Yields extended their declines both in the euro area and in the US, where higher-than-expected weekly jobless claims pointed to a cooling labor market and gave investors further reasons to believe the Federal Reserve is done hiking rates.

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.