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Risk aversion continued to set the tone during a volatile session on Thursday, with the focus turning to the risk of persistency of inflationary pressures and a new round of hawkish commentary from various central bank officials.

Financial markets recorded yet another session with high volatility, with the key drivers remaining the direction of monetary policy, the escalation in tensions with Russia and the strength of the USD.

Volatility remained elevated across financial markets, with investors keeping the focus on the mix of monetary and fiscal policy across advanced economies, more notably in the UK. On the data front, growth in house prices in the US slowed down in July while US consumer confidence improved for a second month in a row in September.

Investors continued to trade with a cautious approach at the start of the week, with risk appetite overshadowed by fears of persistent inflationary pressures and a global recession. UK markets remained in focus, after the pound fell near parity against the USD and bond yields surged as the government reiterated plans to cut taxes.

Yesterday, investors continued to digest the hawkish tone of the main central banks. The Bank of England and the Swiss National Bank decided yesterday to hike interest rate by 50 bp and 75bp to 2.25% and 0.50%, respectively. In the UK the central bank also decided, unanimously, to gradually reduce the size of its balance sheet.

The US Federal Reserve’s meeting centered the stage in a risk-off session, also spurred by the escalation of Russia’s offensive in Ukraine. As expected, the central bank raised policy interest rates by 75 bp while President Jerome Powell said that interest rates will need to stay in restrictive territory for longer, as shown in the dot plot.

Yesterday financial markets recorded a highly volatile session after Russia announced a plan to hold a referendum in the occupied regions in Ukraine this weekend. Investors also dialed up their expectations of tighter monetary policy from central banks, after the Swedish Riksbank surprised with a 100bp hike.

In yesterday’s session, investors traded cautiously as they continued to assess the intensity and duration of the monetary policy tightening that central banks are likely to agree this week and in the coming months.

Investors ended the week trading with a pessimistic tone amid concerns on the economic outlook and tightening monetary policy. On a positive note, the US consumers' inflation expectations survey (University of Michigan) showed the lowest rate since last September, easing concerns that the Fed could hike rates this week by 100bp.

Risk aversion continued to set the tone on Thursday, with sentiment hampered by fears that elevated inflation could keep central banks in a tightening cycle for longer and the increasing threat of energy rationing in Europe this winter.

Investors continued to trade with a cautious approach, still digesting the upside surprise in the US inflation data and taking on board a plan by the EU to intervene energy markets.

Risk aversion returned to the fore on Tuesday after CPI inflation surprised to the upside in the US, fueling a new upward revision in investors’ expectations about the pace of monetary policy tightening by the Federal Reserve.