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Volatility declined and global stock markets rebounded as the rout in Chinese equities eased and investors digested the outcome of the Fed's monetary policy meeting.

Investors turned more cautious as the rout in Chinese equities dragged global stock markets in yesterday's session. Volatility jumped and stocks declined across advanced and emerging economies, with U.S. tech equities posting their biggest drop in more than two months.

Asian stocks dropped markedly on Monday, following the crackdown by the Chinese government on education and tech companies. Investors in Europe and the U.S., however, shrugged off the spike in volatility, bolstered by optimism over the corporate earnings season.

Investors ended the week on a positive mood, supported by upbeat corporate earnings and favourable economic data. Markit's composite PMIs showed that July economic activity remained solid in the U.S. (59.7 points) and accelerated in Europe (EA: 60.6 points, a 21-year high; Germany: 62.5; France: 56.8).

The new forward guidance of the ECB, a tilt more dovish, was received smoothly by financial markets in a session where investor sentiment continued to improve on the back of positive corporate results.

Yesterday investors paused their concerns on the evolution of the pandemic and traded with an optimistic mood amid better-than-expected corporate results. Since the start of the earnings season, more than 85% of the S&P 500 companies that have released results have beaten analysts’ expectations.

In yesterday's session, investors' sentiment improved and recovered from Monday’s lows amid upbeat corporate results. Stock indices in the euro area and in the US rose as traders bought the dip (the S&P 500 registered its biggest daily increase since March).

In the first session of the week, investors traded with a risk-off mood amid rising COVID-19 cases and concerns that the Delta variant might delay the economic recovery. Demand for safe haven assets (such as US Treasuries, the Swiss Franc or the Japanese Yen) increased.

Last Friday, investors' sentiment worsened amid rising COVID-19 cases, now more contagious with the Delta variant.

Treasury yields fell as Federal Reserve Chairman Powell testified before Congress that rising inflation is likely to be transitory and that the central bank would continue to support the economy. The Bank of Japan left its 10-year bond yield target unchanged at about 0% after concluding its meeting and also kept the policy-balance rate at -0.1%.

Jerome Powell maintained his view that strong inflation will be temporary and said that the US economy was still far from levels the central bank wanted to see before tapering its monetary support.

Investors turned their attention to the start of second-quarter earnings season and to inflation concerns in the US, after the consumer price index jumped to 5.4% yoy in June (4.5% yoy the core index). This level is the higher seen since 2008 and fuels speculation that the Federal Reserve will begin curbing asset purchases soon.