The Federal Reserve lowered interest rates by 25 bps to 3.75%–4.00%. Yet Chair Powell struck a hawkish tone, pushing back against market expectations of further cuts. U.S. Treasury yields rose +10bp along the curve, and the dollar strengthened, with the EUR/USD cross near 1.16. The market-implied probability of a December cut fell from 92% to 65%.
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As expected, the ECB kept interest rates unchanged (depo at 2%) and reinforced its meeting-by-meeting data-dependent strategy. Euro area sovereign yields edged higher, and equities had a mixed session across the region. On the macro front, euro area GDP grew 0.2% qoq in Q3 (1.3% yoy), up from 0.1% qoq in Q2.
Markets ended the week mixed. Sovereign yields were broadly stable on both sides of the Atlantic, with curves steepening slightly. In the US, short-term yields declined despite hawkish Fed commentary opposing further rate cuts. In the eurozone, October CPI came broadly in line with expectations (although core inflation surprised slightly to the upside). Very long-term yields rose following the French parliament’s rejection of a wealth tax proposal, which also widened the French spread.
Investors started the week in a mixed mood. US Treasuries rose modestly amid growing divisions within the FOMC, as Miran reiterated the need for aggressive rate cuts, citing what he described as tight financial conditions, while Goolsbee warned against easing prematurely given persistent inflation.
The week started on a risk-off tone. Equities fell across the board, particularly in the US, as several Wall Street CEOs and major banks warned of potential drawdowns and concerns over overstretched valuations. European and Asian indices also declined, albeit more modestly, with Spain’s Ibex closing flat.
Markets traded on an upbeat tone on Wednesday. Sovereign yields rose on both sides of the Atlantic on positive macro news. US Treasuries rose as the ISM index showed services sector activity increased in October to 52.4, an eight-month high. The ADP survey showed job creation remained subdued in October, but surprised positively too (42k vs 30k expected).
Risk appetite deteriorated on Thursday. Sovereign yields fell in the US after a private report (the Challenger index) showed the US economy shed more jobs than expected in October, reportedly due to AI-driven layoffs. Legal uncertainty around Trump tariffs added pressure, as Supreme Court justices questioned their validity during an ongoing hearing. The move came despite Fed officials speaking on the day pushed back against rate cuts, citing inflation risks and the lack of official data.
Friday’s session registered losses in nearly all major stock markets as investors reassessed elevated valuations in the technology sector. On the macro side, the University of Michigan Consumer Sentiment Index fell to a three-and-a-half year low, as worries about the economic consequences of the longest government shutdown ever increased.
Risk appetite surged on Monday, buoyed by expectations that the US government shutdown could end this week after several Democrats broke ranks to support a funding bill. Equity markets rallied on both sides of the Atlantic and tech stocks led the gains, rebounding rom Friday’s losses.
In yesterday’s session, euro area sovereign yields edged lower with little news to trade on, while US treasuries did not trade as bond markets were closed due to Veterans Day holiday. The dollar weakened as investors continued to digest the generalized cautious tone of Fed officials on a rate cut on December, while the Japanese yen hit a nine month low.
As it has happened 4 times in the past, near the ending of a US government shutdown, equity markets rallied in Europe. In the US, however, main indices were mixed, with the Nasdaq registering losses as investors remained cautious about too-high valuations of tech companies. Last night, Trump signed into law the spending bill, allowing the US government to reopen.
Yesterday's main news was the reopening of the US government after the largest shutdown in history. However, Treasury yields rose as markets priced a lower probability of a December rate cut amid lingering uncertainty over the inflation outlook and growing divisions among Fed officials.
Risk-off session to end the week, as concerns about high valuations in the technology sector and doubts on whether the Federal Reserve will lower rates in December, weighed on investor sentiment. Stocks sold off in the euro area and ended flat in the US, albeit having started the session with losses.
The week began with a risk-off session as investors awaited several US tech mega-cap earnings reports amid concerns about high valuations in the sector. Stocks sold off globally, while sovereign yields edged lower and the dollar strengthened, as President Trump's decision to exempt a large list of agricultural products from reciprocal tariffs barely impacted the market.
The sour mood in equity markets extended for another session amid continued worries about high valuations in the tech sector. Global stock indices fell, with losses led by euro area equities, and accumulated losses of over 3% in a week. The VIX volatility index is up 42% week-over-week and trading above 24 points. Amid risk-averse sentiment, the dollar rose.
Markets had a mixed session. US stocks advanced ahead of Nvidia's earnings report, while most euro area indices retreated. US Treasury yields rose after the BLS announced it will not publish the October and November jobs data before the Fed's next meeting, leading markets to reduce expectations of a rate cut in December to 30%. Euro area sovereign yields were flat.
Markets opened on a positive note after strong Nvidia earnings results, with a clear risk-on tone in Europe as equities rose and sovereign yields edged higher. But sentiment reversed sharply in the US after the European close, leading to a broad pullback in equities, with an intraday swing of nearly 5% in the Nasdaq, as the VIX hit its highest since April.
Markets ended Friday mixed as Fed guidance revived rate-cut bets, tempering weak sentiment in Asia and Europe. Comments from Fed Williams suggesting December interest rate cuts could align with inflation goals boosted markets' expectations for such event and drove US Treasury yields slightly down.
Markets opened the week on a risk-on tone, as Fed's Waller also favoured a December rate cut, much like Williams had done on Friday. Waller favoured the cut on the basis of a soft and weakening labour market, which pushed US Treasury yields lower and brought market expectations of a cut in December to 75%.
Markets kept the positive tone on Tuesday, as Fed's Miran advocated for aggressive rate cuts. Separately, a flurry of US data suggested consumer fatigue (retail sales growth decelerated in September, and the Conference Board Consumer Confidence Index fell in November below expections), lifting expectations for a December rate cut and pushing Treasury yields lower.