On Friday, investors digested key economic data releases in the euro area: GDP growth in Q1 decelerated from 0.3% to 0.2% and inflation ticked up from 7.4% in March to 7.5% in April. Nevertheless, the focus of the inflation figures was on the core index, which rose from 2.9% to 3.5% in a sign that inflation is rising across all the components.

On Friday, investors traded cautiously as they continued to assess the economic outlook for the main advanced economies. Stock indices rose modestly in the euro area while, in a volatile session, the S&P 500 closed barely flat. Emerging economies’ indices registered solid advances.

A positive start of the week across financial markets, with sentiment boosted by resilient survey data in Europe and a relaxation of COVID restrictions in China. Markets were closed in the US due to a public holiday.

Inflation and monetary policy continued to center financial markets’ stage in yesterday’s session. Euro area HICP surprised again to the upside and reinforced the views of those in the ECB Governing Council pushing for a 50bp interest rate hike in July.

Fears of an economic recession with persistent inflationary pressures continued to weight on investors’ sentiment on Friday, following somewhat feeble economic survey data in the US (the ISM manufacturing slowed down from 56.1 to 53.0 in June) and another increase in eurozone HICP inflation (from 8.1% y/y to 8.6% y/y in June).

Risk aversion returned to the fore during a volatile session on Tuesday, as investors reassessed the risk of a global recession amid ongoing disruptions in gas supply in Europe and reports of new COVID cases in some regions in China.

Investors continued to trade with cautious on Wednesday, taking on board mixed economic data and the hawkish signals in the minutes of the last meeting by the Federal Reserve. European natural gas prices continued to edge higher, despite the intervention by Norway’s government to end an energy workers’ strike.

In yesterday’s session, investors’ concerns of a decelerating economy spiked after worse-than-expected sentiment data in Germany and the euro area and comments from Richmond Federal Reserve President Thomas Barkin.

Investors' sentiment continued to improve yesterday following reports that Russia is willing to restart natural gas exports tomorrow, after the maintenance break. On monetary policy, a report suggesting that the ECB might consider a 50bp hike on Thursday pushed interest rates higher in the euro area.

Italian politics and European natural gas developments centered the stage in yesterday’s session. On the one hand, Draghi’s coalition government failed to pass the confidence vote, increasing the odds of snap elections this autumn.

In the last session of the week, investors' recession fears increased following the worse-than-expected economic sentiment data. In particular, July's Composite PMIs for the euro area and the US fell below the 50 points threshold, with decreases in both the services and manufacturing indices.

Investors started the week trading cautiously, taking on board weak sentiment data, hawkish commentary by some ECB officials and news reporting that Russia is due to reduce gas supplies to Europe.

Demand for riskier assets dominated investors mood on Wednesday, following a widely expected interest rate increase by the Federal Reserve and positive signals from various corporate earnings result in both Europe and the US. Adding to the positive sentiment, orders placed with US factories unexpectedly rose in June.

Volatility and risk aversion continued to dominate across markets during the last session of the week, following hawkish signals from central bank officials in Jackson Hole and a further increase in natural gas prices in Europe. 

Investors continued to trade with a risk-off mode, taking on board new hawkish comments from central bank officials and data showing job openings in the US unexpectedly rose in July. In addition, the flash HICP readings for both Spain and Germany showed inflation remained elevated in August (the eurozone aggregate will be released today).

During a volatile session, financial markets closed with mixed results, balancing out another upside surprise in HICP inflation data in the eurozone (up by 9.1% y/y in August) with signs that job creation in the US may have moderated in August (according to the ADP survey). 

Investors ended the week with mixed results, with sentiment supported by data showing employment growth in the US slowed down in August, in line with expectations, while the jobless rate rose by 0.2 p. p. to 3.7%. In the eurozone, producer prices (PPI) rose by 37.9% y/y in July, fueling concerns that inflationary pressures are building up.

Financial markets started the week on a risk-off mood, as the Russian gas cut off worsened the European energy crisis and the region’s economic outlook. 

Investors continued to trade with caution in anticipation of further monetary tightening by the Fed, despite ISM service sector survey in August was consistent with very solid growth in Q3. In the euro zone, the surveys anticipate the ECB will hike interest rates by, at least, 50 bp on Thursday.

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.