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In yesterday’s session, investors traded on a generalized risk-off sentiment following slightly higher-than-expected inflation in Germany during May: 2.8% yoy vs. 2.7% anticipated, up from 2.4% last month. Hawkish comments from central bank officials from the day before also continued to weigh on overall sentiment.

Sentiment in sovereign bond markets during yesterday's session turned more positive following the revision of US GDP Q1, which showed the economy grew somewhat less than previously estimated (0.33% vs 0.42% q/q), giving the Federal Reserve more room to lower interest rates this year. Yields on sovereign bonds fell across the board.

The week finished off with a session without any significant movements as inflation figures released on Friday largely aligned with expectations. The US PCE deflator for April came in at 2.7% yoy, as expected. Euro area inflation rose to 2.6% yoy in May, just above the 2.5% expected, although the monthly variation recorded the expected 0.3%.

Markets kicked-off the week on a risk-on tone following the release of weak manufacturing data in the US which boosted expectations the Fed will have room to lower interest rates this year. Specifically, the ISM manufacturing purchasing managers index for May fell to 48.7 from 49.2, and the prices paid component surprised to downside.

Sovereign bond yields fell for a second consecutive day on both sides of the Atlantic as softer-than-expected job openings data in the US reinforced expectations the Fed will lower rates this year. In the euro area, markets await the ECB tomorrow, which is widely expected to lower interest rates by 25 bp.

As expected, the ECB lowered interest rates by 25 bp, taking the depo and refi rates to 3.75% and 4.25%, respectively. As for its next steps, the ECB once again remarked future decisions will be “data-dependent”, noting that the inflation path will not be exempt from surprises.

The week ended on a ‘higher for longer’ note, which weighed on assets. US non-farm payrolls for May showed a greater-than-expected job creation and an acceleration in average hourly earnings growth, while euro area compensation per employee also surprised on the upside, sending sovereign yields higher across the board on both sides of the Atlantic.

The week began with European investors in a risk-off mood. Eurozone government bond yields rose on fresh hawkish comments from several ECB officials, including Lagarde, who emphasized the idea that the ECB could wait several meetings between cuts

Investor sentiment was mixed on Thursday. In the eurozone, political uncertainty following the upcoming snap elections in France, with Moody’s even issuing a credit rating warning on the country, weighed on equities, with French banks suffering the most.

A quiet session on Wednesday as US markets were closed for the Juneteenth holiday. In the eurozone, government bond yields rose and peripheral spreads widened after the European Commission opened an excessive deficit procedure for France, Italy, Belgium and five other member states under the 2024 European Semester Spring Package.

In yesterday's session, euro area sovereign bond yields advanced, with a slight widening of peripheral spreads, while equities retreated amid weak sentiment. Consumer confidence indices in both Germany and France fell from their May readings. Several remarks from ECB officials including Lane and Schnabel reiterated the ECB's data-dependent strategy.

Without any major macroeconomic news to trade on, sovereign bond markets had a relatively quiet session yesterday with only minor price changes: yields edged down in the euro area, but rose in the US. Equities were mixed, posting gains in the US boosted by tech mega-caps, while European indices declined as sentiment remained weak.

Investors kicked off the week with a somewhat quiet session as they await key inflation data later this week: June CPI for France, Spain and Italy; and the US PCE deflator, the Fed's preferred inflation measure.

The week ended with investors in a risk off mode in the financial markets. In the eurozone, PMI data for France and Germany came in below expectations and below last month's levels, while in the US the index rose slightly from May.

Yesterday's session provided some mixed signals on investor sentiment. Government bond yields rose slightly on both sides of the Atlantic, with peripheral eurozone spreads narrowing. This was partly explained yesterday's auction of French sovereign bonds, which despite recent volatility were in high demand from investors.

The week started on a mixed note for financial markets. Eurozone government bond yields rose across the board, with peripheral spreads narrowing in stark contrast to French spreads, which widened again. However, equity performance was more mixed across the region, with French indices rising on comments from Le Pen’s party on their respect for institutions.

Thursday’s session saw a mixed performance across assets as investors grappled with a mixed bag of economic data and the latest Fed decision. In the US, Treasury yields were lower after the rise in initial jobless claims and the decline in the Producer Price Index raised investors’ expectations of a Fed rate cut in September.

Eurozone investors closed last week by reducing their risk exposure as the chances of a new French parliament willing to increase the country's budget deficit increased. This pushed eurozone government bond yields lower, although spreads widened, particularly on French bonds. Equity indices also fell across the board.

Investors continued to adjust their expectations for future interest rate cuts following strong PMIs, higher-than-expected wage growth in the euro area, and some hawkish remarks from central bank officials. Markets are now pricing in just two cuts from the ECB this year and one cut from the Fed, down from three and two, respectively, last week.

Tuesday saw a risk-on mood in financial markets. In the US, retail sales data for May barely grew and showed a weaker than expected consumer, supporting hopes for interest rate cuts this year. Fed officials commenting during the day also highlighted good progress on disinflation, pushing Treasury yields lower and equities slightly higher.