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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.

Investors traded with a slightly higher risk appetite on Friday as several key inflation data points on both sides of the Atlantic fell and despite the risk of a US government shutdown, which was eventually averted over the weekend, rose. Eurozone inflation fell to a 2-year low, with core CPI showing positive momentum and US core PCE also moderating.

Yesterday's session was filled with economic data releases. In the US, Q2 2023 GDP revision left growth unchanged from previous estimates at 2.1% SAAR, and personal consumption had its slowest increase in a year. In Europe, September inflation in Germany eased to 4.5% y/y from 6.1% in August but ticked up in Spain to 3.5% from 2.6%.

Stock markets advanced in the US, Europe and Asia while sovereign yields remained stable. In Spain, markets underperformed their peers as stocks declined and sovereign spreads rose.

Yesterday investors traded cautiously as the threat of a possible US government shutdown by the end of the week and “high for longer” interest rates continue to lead the narrative. Investors were also at odds with Minneappolis Fed President Neel Kashkari’s dovish tone regarding interest rates path ahead.

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.

In the first session of the week, central banks remained the focus of investors’ attention, as they continue to digest the high-for-longer rhetoric. Yesterday, the hawkish tone of some FOMC members’ comments pushed US 10-year Treasury yields higher, fluctuating above 4.5%, a level not seen since late 2007.

Financial markets ended the week giving mixed signals from both sides of the Atlantic. In Europe, flash PMI data for September showed a slight improvement in business activity, albeit still signalling economic contraction amid a weak German manufacturing sector, pushing up government bond yields and dragging most equity indices lower.

During yesterday’s session investors largely digested the Fed’s hawkish pause on Wednesday, positioning further into the narrative of a soft landing for the US economy and higher interest rates for longer. Thus European and US government bond yields rose in the medium and long term, and either fell or remained unchanged in the short term.

The Fed delivered a hawkish pause yesterday, leaving interest rates unchanged but acknowledging a strong US economy. The dot-plot projects a tighter policy through 2024 and 2025, consistent with rates higher for longer. US stock indices fell and US Treasury yields rose on the news, with the yield curve flattening, while the USD appreciated.

Today’s FOMC meeting remained the focus of investor attention in yesterday’s session, with markets currently pricing in the Fed to keep rates unchanged. On the data front, US new home construction fell to its lowest level since 2020 as higher mortgage rates in August appear to have cooled demand.

Greetings back to work in a week beginning with the downbeat echoes of Friday, when investors traded in a risk-averse mood. Sovereign bond yields ended the week sliding across the board, especially in Europe, and so did stocks, with the biggest falls in China. The USD was broadly flat, while commodities rose slightly.

In the last session of the week, investors digested the central bank presidents’ speeches at the awaited Jackson Hole conference. There, Jerome Powell said that the US Federal Reserve will proceed carefully in the coming months and that monetary policy will remain restrictive for longer, hinting at a possible pause in the September meeting.

Eurozone sovereign bond yields remained broadly flat In Thursday's session as investors awaited the Jackson Hole meeting, which started last night with mixed comments from ECB officials. Centeno advised caution on further hikes, as downside risks for the economy are materializing, while Nagel said it's 'much too early' for a pause.

In yesterday's session, weak PMI data for August, which signalled a slowdown in economic growth across the Atlantic, but most acutely in Europe, caused sovereign bond yields to fall across the board (around 13bps. for the long-term references). In the eurozone, PMI data for the services sector fell below the 50 threshold for the first time in 2023.

As investors await the Jackson Hole conference for some guidance on monetary policy, European sovereign bond yields fell across the board in Tuesday's session. Meanwhile US short-term references posted gains, boosted by Fed's Barkin hawkish remarks on how the current strong economy would allow for higher rates should inflation pick up.

With little novelties on the data front, investors started the week resuming their positioning to higher rates for longer selling off sovereign bonds, bringing yields up again. The surge was greater on long-term references and widespread across developed economies, with the US 10-year benchmark rising 9 bps. to hit multi-year highs.

In yesterday’s session, investors weighed mixed signals from economic sentiment indicators in the US and in Germany. While the Conference Board consumer sentiment indices rose in July, signaling that private consumption might still have room to grow in Q3, the German IFO moderated.

In the last session of the week, investors traded cautiously in absence of key macroeconomic data releases and as they waited for monetary policy meetings this week in the main central banks.

The global economic outlook centered the stage in yesterday’s session as investors focused on July’s flash PMIs. In the euro area, the soft growth momentum was visible in the fall of the services (51.1) and manufacturing (42.7) indices. In the US, the manufacturing PMI rose and got closer to the 50-point threshold, but the services PMI lost steam.