Evolution of the international financial markets and evaluation of the main events and economic indicators of the previous day session. Available in English.
In yesterday’s session, higher-than-expected inflation data for December in Japan (headline 4.0%; core 2.7%) and hawkish comments from some central bank officials were the main drivers in financial markets. In particular, ECB Isabel Schnabel reiterated that interest rates need to be risen significantly to tackle down inflation.
In the first session of the week, investors digested the US employment report and the HICP inflation data released last Friday together with comments from central bank officials. In particular, San Francisco's Fed President Mary Daly said that a 25bp or 50bp hike in the next meeting are both on the table and pointed to a terminal rate over 5%.
In the last session of the week, investors continued to trade with a risk-on mode, taking on board the fall in HICP inflation in the eurozone (9.2% in December after 10.1%) and the US employment report for December. On balance, the data suggested central banks will continue hiking policy interest rates but likely at a reduced pace.
Investors started the year trading with a risk-on mode, taking on board data showing receding inflationary pressures in Europe, a slowdown in economic growth in the US and a further decline in energy prices across the globe. As a result, investors revised down modestly their expectations for future policy interest rate hikes.
Risk aversion returned to the fore during a session characterized by low volumes in the run-up to the holiday season. Investors continued to reassess their expectations about monetary policy tightening amid hawkish commentary from some ECB officials and robust economic data in the US (e.g., new jobless claims and the upward revision in Q3 GDP).
Volatility declined during a risk-on session on Wednesday, with investors sentiment boosted by a mix of positive consumer confidence data, plummeting housing indicators and upbeat earnings from some large US retailers.
In yesterday’s session, monetary policy tightening from the main central banks continued to center the stage in financial markets. The Bank of Japan surprised with its decision to increase the range of tolerance around its yield curve control tool. The ten-year sovereign yield rose 25bp towards 0.50% and the JPY appreciated markedly.
Investors continued to err on the side of caution at the start of the week, with the focus turning to the risk of a global recession amid expectations of further monetary policy tightening from major central banks and the ongoing deterioration in the COVID pandemic in China.
Volatility and risk aversion continued to set the tone during the last session of the week, as investors were still digesting the hawkish rhetoric during the last monetary policy meetings of 2022 at major central banks.
The hawkish tone of the ECB at its yesterday's meeting centered the stage in financial markets. The ECB raised official interest rates by 50bp, as expected, but noted that ongoing increases at a "steady pace" will be necessary to bring inflation back to the 2% target and announced that the QT will start in March by not reinvesting €15bn/month.
In yesterday’s session, the US Federal Reserve meeting centered the stage. It raised official interest rates by 50bp up the 4.25%-4.50% target range, a slowdown in the pace of monetary policy tightening, but still a large move by historical standards. Jerome Powell signaled that ongoing interest rate hikes will be necessary to return price stability.
In yesterday’s session, the lower-than-expected release of US CPI inflation pushed down the expectations of a far too tightened monetary policy in the Federal Reserve. Headline inflation moderated from 7.7% to 7.1%, confirming the downward trend but still at very elevated levels, while core inflation edged down 0.3pp to 6.0%.