Market sentiment was mixed on Wednesday. On the one hand, higher-than-expected US inflation data for January (headline: 0.5% mom, 3.0% yoy; core: 3.3% yoy) pushed back market expectations for the next Fed rate cut from early summer to the end of the year, and the probability of a second cut went down to virtually zero.

Investor sentiment ended the week on a mixed note. Eurozone government bond yields rose moderately after the second reading of Q424 GDP came in slightly better than the first (0.1% QoQ vs. 0.0%), with peripheral spreads widening.

Investor risk appetite remained relatively high on Tuesday. In the eurozone, government bond yields were broadly unchanged. The ZEW index showed a rise in German investor sentiment in February, and ECB's Cipollone had some dovish comments on future interest rates, both of which offset news of future higher public spending on defence in the EU.

Investors' sentiment continued to deteriorate amid escalating trade tensions and Russia's initial refusal to agree to a truce in Ukraine. Equity markets ended lower, particularly in the US, and Treasury yields fell as investors increased their demand for safe-haven US government debt. Oil prices declined as markets weighed the risk that the tariff war could dampen global energy demand.

Correction session for the markets, characterised by nervousness ahead of the looming tariff threat on April 2nd, as referenced by central banks, and an upcoming corporate earnings season that may begin to reflect these concerns in companies' forecasts.

Risk appetite recovered somewhat yesterday. In a volatile session ahead of today's announcement by Trump of reciprocal US tariffs on virtually every other country in the world, investors assessed a series of price and activity data as increasing the chances of rate cuts.

Financial markets continued on a risk-off mode during Friday's session, as investors tried to assess the potential consequences of China retaliating on US tariffs, enacting duties on all US imports and export controls on rare earths. In this context, US sovereign yields fell, as investors expected the Federal Reserve will cut its intervention rate twice by July.

In yesterday’s session, global financial markets registered mixed movements, underscoring investor caution amid persistent geopolitical tensions and lingering economic uncertainty. In the United States, expectations for a potential rate cut in June gained traction after several Federal Reserve officials indicated a willingness to ease policy should signs of labour market weakness emerge.

Euro area financial markets were closed during yesterday’s session for May 1st holiday. In the US, a better-than-expected ISM manufacturing index, which also showed signs that input prices have been kept elevated due to tariff policy, lowered expectations of four interest rate cuts in 2025 and sent US Treasury yields higher.

A better-than-expected employment report in the US eased fears of a severe economic downturn, pushing expectations of a first Fed rate cut back one meeting to July and lowering total expected cuts in 2025 from four to three. Sovereign bond yields rose on both sides of the Atlantic following the report and stock markets rallied.

The Federal Reserve kept the federal funds rate unchanged at the 4.25%-4.50% range and highlighted that the risks of higher inflation and higher unemployment have risen. The decision had been widely discounted by markets and had little impact on financial assets. Markets still expect three cuts in 2025, starting in July, and Treasury yields ended the session mostly flat.

In yesterday's session, global financial markets delivered a mixed performance, shaped by the release of subdued economic data and growing expectations of potential interest rate cuts in the US. Investors also remained cautious amid ongoing speculation over possible peace talks between Russia and Ukraine.

Investor risk appetite ended the week positively, as US non-farm payroll figures for May came in higher than expected, with job creation gradually cooling (139k in May versus 147k in April), though there are still no major signs of strain from Trump's tariffs. This should give the Fed more time before cutting rates, causing Fed Funds futures and US Treasury yields to rise.

Financial markets were mixed during yesterday's session, ahead of May US CPI data to be released tomorrow. US and euro area sovereign bond yields closed the session slightly lower. Separately, news that Japan would be considering buying back bonds with very long maturity to prevent abrupt rises in bond yields, weighed on Japanese yields.

Financial markets were mixed during yesterday's session. US CPI for May came softer than expected, with core CPI increasing by 0.1% mom (vs. expected 0.3%) and 2.8% yoy (vs. 2.9% expected), and overall CPI climbed 2.4% yoy, as expected. Separately, Trump said that a US-China trade deal is "done", which could ease trade frictions between the two countries.

Investors turned cautious again on Tuesday as the Israel-Iran conflict continued. US Treasury yields fell ahead of the FOMC meeting, where the Fed is expected to leave rates unchanged as it seeks more clarity on the impact of tariffs. Yesterday's data releases showed a softening US economy in May: retail sales dropped by more than expected (although so-called "core" retail sales increased); import prices remained stable, surprising to the upside; and industrial production fell slightly.

A downward revision of US Q1 GDP, primarily due to weaker private consumption growth (0.1% qoq vs. 0.3% previously estimated), increased market expectations that the Fed could lower interest rates as much as 75bp this year compared to the 50bp expected before.