Evolution of the international financial markets and evaluation of the main events and economic indicators of the previous day session. Available in English.
US Q2 GDP surprised to the upside. The economy grew at a seasonally adjusted annualized rate of 2.8%, up from 1.4% in Q1, and the GDP deflator fell from 3.1% to 2.3%. The release supported the narrative that the US economy is achieving a soft landing, and left the probability of 100% that investors assign to a Fed rate cut in September unchanged.
Lower-than-expected PMIs for July in the euro area (services 51.9 vs. 52.9 expected, and manufacturing 45.6 vs. 46.1 expected) sent the region's sovereign bond yields higher. Equities were mixed, ending mostly lower, while the PSI20 advanced and the Ibex-35 ended flat, boosted by the energy and utilities sectors.
Monetary policy expectations guided investor sentiment during yesterday’s session in euro area financial markets. On the macro front, the Eurozone consumer confidence index rose to –13 from –14 in July. US existing home sales fell more than expected in June, while house prices hit another record high.
Markets had a muted reaction to President Biden’s decision to drop out of the presidential race and endorse Vice President Harris as the Democratic candidate. Sovereign bond yields were mostly unchanged on both sides of the Atlantic and the US dollar was flat against its main counterparts.
Investors’ attention during Friday’s session focused on the worldwide cyber outage that affected banks, airlines, and telecommunications companies. The software glitch unnerved investors and dragged down overall sentiment, affecting mostly equity markets which ended the session lower across the globe.
A mixed session in financial markets on Thursday as the ECB left interest rates unchanged as expected. Lagarde said that eurozone growth was likely to have slowed in Q2 and expected wage growth to moderate in the coming quarters, but insisted that the September move remained "wide open".
Another session of mixed results across markets on Wednesday. Sovereign bond yields remained rather flat amid low trading volumes on both sides of the Atlantic. In the eurozone, all eyes were set on today’s ECB meeting, where the bank is expected to leave interest rates unchanged. In the US, Fed officials said they are “closer” to cutting interest rates.
Markets on both sides of the Atlantic saw mixed results yesterday. In the eurozone, where all eyes are on tomorrow’s ECB meeting, sovereign bond yields fell while peripheral spreads remained flat after the ZEW survey showed German business sentiment at its lowest in four months in July and despite the Q2 BLS showing an increase in credit demand.
Financial markets started the week with all eyes on the ECB’s Governing Council meeting on Thursday. The ECB is expected to leave interest rates unchanged and stick to its "data dependency" approach. European sovereign bond yields fell and peripheral spreads tightened yesterday ahead of the meeting and today's Q2 Bank Lending Survey.
Investors ended the week with a modest appetite for risk. In the US, Treasury yields edged lower as June producer price data and the University of Michigan's one-year inflation expectations pointed to easing price pressures, bolstering expectations for a Fed rate cut in September.
Yesterday’s session centered around the June inflation report from the US: inflation cooled to 3.0% in June (from 3.3% in May) and core inflation fell to 3.3% from 3.4% last month. On a monthly basis, prices fell –0.1%, the first negative rate in four years. Markets are discounting two interest rate cut from the Fed in 2024, and a 40% probability of a third cut.
Market sentiment improved during yesterday’s session as investors turned their attention away from political instability in the euro area to monetary policy in the US. On his second day in Congress, Fed Chairman Powell said the Fed doesn’t need inflation below 2% before cutting interest rates and signaled the balance sheet run-off still has “ways to go”.
During yesterday's session, investors continued to assess the results of the French elections last weekend which left the country with a fragmented National Assembly. Financial markets seemed to value the situation negatively and adopted a risk-averse tone, sending euro area sovereign bond yields higher and equities sharply lower, particularly in France.