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Risk appetite returned to the fore on Tuesday, as “buy-the-dip” movements and solid economic data provided some comfort to investors’ sentiment, easing worries of an economic recession.

Volatility continued to dominate across financial markets at the start of the week, fueled by mounting concerns about the health of the global economic recovery, after the release of weaker-than-expected monthly economic indicators for April in China on Monday.

Investors' sentiment improved at the end of the week amid comments from Federal Reserve president Jerome Powell signaling that 75 basis points increases are, for now, off the table.

Investors traded with a risk-off mood in yesterday's session, fueling the demand for safe-haven assets. The main concern continues to be whether central banks will be able to tackle down inflation without triggering a recession.

In yesterday's session, investors' expectations on inflation and the path central banks could follow in the coming months remained the key drivers. The moderation of US inflation in April (headline -0.2pp to 8.3% and core -0.3pp to 6.2%) suggests that the peak may have already been in March. 

In yesterday's session, sentiment recovered somewhat as investors continued to assess the inflation and growth outlook amid several central bank officials’ comments.

In the first session of the week, investors' sentiment deteriorated amid concerns on whether the ongoing withdrawal of monetary policy accommodation will be able to tackle inflationary pressures without leading to a recession.

On Friday, investors focused their attention on the April employment report for the US, which confirmed that the tight labor market should allow the Fed to continue hiking interest rates. The expectation of a tighter monetary policy led to increases in the yields of sovereign bonds and volatility in stock markets.

Risk-aversion returned to the fore during a volatile session on Thursday, as investors continued to digest recent monetary policy decisions by central banks (Fed, BoE) and took on board disappointing economic data (e.g. the fall in factory orders in Germany and the uptick in new jobless claims in the US). 

In line with expectations, the Federal Reserve raised its policy rate by 50 bp to the 0.75-1.00% range and confirmed a plan to reduce the size of its balance sheet (with a monthly cap of $95 billion). The Fed chair Powell noted that the recovery could withstand tighter monetary policy but also ruled out more aggressive rate hikes of 75 bp.

Investors traded under a cautiously optimistic mood on Tuesday, waiting for the outcome of the Federal Reserve meeting to be announced today. Consensus expectations look for a 50 bp hike in the policy rate as well as details of the plan to reduce the central bank’s balance sheet.

Volatility continued to dominate across financial markets at the start of the week, as investors took position ahead of the Federal Reserve meeting staring today and following the release of feeble economic sentiment data (final manufacturing PMIs). EU leaders were still evaluating a new round of sanctions against Russia.