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A lower-than-expected reading of June’s US inflation led investors to project a lower path for the Federal Reserve’s interest rates. Concretely, headline and core inflation fell by 1pp and 0.5pp to 3.0% y/y and 4.8% y/y, respectively.

Investors traded in a subdued mood on Tuesday, as they awaited today’s US CPI report and digested the latest dovish comments from several Fed officials on Monday: Bostic, who said that inflation could be brought back to target without further rate hikes; and Daly, who said the Fed was approaching «the last part» of its hiking cycle.

Investors started the week trading with a cautious mood, still digesting the mixed US employment report released on Friday and awaiting tomorrow's key CPI inflation data. Also, comments from San Francisco Federal Reserve President Mary Daly pointed to further interest rate increases even if signaling the end of the hiking cycle is nearing.

In the last session of the week, a mixed US labor market report left investors trading cautiously. While the pace of job creation eased to the lowest reading in 30 months in June (209k) and the previous two months were revised lower, wage increases remained elevated (4.4% y/y) and the unemployment rate ticked down to 3.6%.

In yesterday’s session, investor sentiment was soured by data showing the resilience of the US economy and its labour market. Private surveys showed that US companies added the most jobs in over a year in June, and the services sector expanded faster than expected, which investors fear will allow the Fed to continue raising rates.

The minutes of the Fed's June meeting showed that the decision to hold interest rates steady in June was not unanimous, and that most officials expected further rate hikes would be necessary, as the dot plot had shown. Also yesterday, US factory orders data for May came in below expectations, but still showed growth.

Trading in global markets was subdued on Tuesday as US markets were closed due to a domestic holiday and there was little in the way of data releases to guide investors. The most notable of these was German exports, which fell -0.1% m/m in May, missing analysts’ expectations of a 0.3% rise.

Investors started the week trading cautiously. Weak manufacturing sector surveys pointed to a cooling yet resilient economy but were not enough to completely dampen investors’ risk appetite.

Investors ended the week on a brighter note than on Thursday. Market sentiment was boosted by encouraging data on inflation dynamics in the US and in the eurozone (despite a modest tick up in core inflation).

Investors continued to err on the side of caution, taking on board yet another round of hawkish signals from central bankers and incoming data pointing to lingering inflationary pressures and a strong US economy.

The outlook for monetary policy and inflation remained the key themes during a session with mixed results. On the one hand, risk appetite was lifted by a softer-than-expected inflation print in Italy (the headline HICP eased from 8.0% y/y in May to 6.7% in June). On the other, sentiment was spurred by hawkish signals from central bankers in Sintra.

Investors' risk appetite increased on Tuesday as some upbeat economic data in the US (where new-home sales rose at the fastest pace in over a year in May and consumer confidence rose to its highest level since early 2022 in June) balanced out a fresh round of hawkish comments from several central bank officials.