Financial Markets Daily Report

Search

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.

In  yesterday's session, markets reacted positively to signs US reciprocal tariffs on its trade partners may be weeks from coming into effect, raising the prospect for negotiations that could make them less punitive.

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.

Uncertainty and risks surrounding US trade policy drove sentiment in financial markets during the session. President Trump imposed 25% tariffs on all steel and aluminum imports, to which European Commission President von der Leyen responded "will not go unanswered" while Canada's PM stated that his country will give a "firm and clear" response.

Investors kicked off the week on a cautious tone following President Trump's tariff threats over the weekend, which he said would include a 25% tariff on aluminium and steel imports (eventually signed via executive order late last night) as well as a series of further reciprocal tariffs on all trading partners.

A strong US jobs report for January, with the unemployment rate falling 0.1 p.p. to 4.0% (the lowest since May) and wage growth accelerating to 4.1% yoy from 3.9% in December, reaffirmed expectations of a cautious Fed this year. Expectations for the next interest rate cut were delayed to July/September, and the probability of a second rate cut fell below 50%.

A relative sense of caution prevailed in the US stock market, ahead of corporate earnings and January’s jobs data, while stocks edged up in the eurozone.

Financial markets traded on a mixed tone during yesterday's session. In the euro area, sovereign bond yields edged lower as Eurozone PPI came close to expectations (0.0% yoy, 0.4% mom) and French industrial production contracted by 1.7% yoy, more than expected (-1.2% yoy). ECB office members expressed potentially stronger policy easing ahead.

Sentiment recovered during yesterday’s session, as investors digested the announcement that US tariffs on Mexico and Canada will be delayed for at least one month. Trade war uncertainty, however, concentrated in Asia, as China announced retaliatory tariffs on targeted products coming from the US, to take effect next Monday.

Risk-off mode in financial markets during yesterday's session as investors digested the US Administration's announcement on Saturday of 25% tariffs on Canada and Mexico, and 10% on China. Tariffs on Mexico were paused later in the day, adding more uncertainty around US tariffs policy, its duration, and its magnitude.

Financial markets were mixed on Friday's session, as inflation data releases were digested by investors. In the US, PCE edged higher to 2.6% yoy in December, from 2.4% in the previous month, but core PCE came at 2.8% as expected. In this context, US sovereign bonds were mostly unchanged as inflation continues to show some persistence in its path to 2%.

Yesterday's market sentiment was driven by the ECB's rate cut announcement, the fifth cut since last June, leaving depo rate 25bps lower at 2.75%. Officials kept the door open to further policy easing, given euro area GDP data was stagnant and could be hit by a trade war from the new US Administration. By end of session, markets expected 3 more cuts in 2025.