Euro area investor sentiment recovered following the EU-US trade deal, sending stocks higher across the region. In the US, investors traded in a risk-off mood on news that, after two days of negotiations in Stockholm, Chinese and US officials failed to deliver a trade deal and agreed only to seek an extension of the 90-day tariff truce. Stocks fell, and Treasuries rallied.
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Risk-off sentiment drove markets after a weaker-than-expected U.S. labor market report (nonfarm payrolls +22k in August, and June-July revised down to a cumulative +66k [prior: +87k]). Advanced-economy stock markets declined and sovereign yields dropped amid stronger market expectations over Fed cuts. The euro strengthened above $1.17 and gold rose.
U.S. equity markets reached new highs, led by technology, as sovereign yields declined after producer prices fell more than expected in August (-0.1% m/m), driven by lower services prices. The data reinforced market expectations of a Fed rate cut next week. In Europe, major indices closed mixed, with the notable gains in the IBEX-35 and the defense sector.
Investors traded cautiously in the first session of the week as they pondered over the risk of a U.S. government shutdown (federal funding expires on September 30 unless Congressional leaders agree on a spending bill). The VIX rose, stocks were mixed, sovereign yields declined across the U.S. and the euro area, the USD weakened and gold rose.
Markets were mixed in yesterday's session as the U.S. government shutdown clouded data releases. Technology equities drove the U.S.' Nasdaq to record highs, while the S&P 500 was barely changed and euro area stocks were mixed. Sovereign yields nudged down and the USD inched higher. Brent oil prices continued to fall ahead of the weekend's OPEC+ meeting.
Investors ended the week with a mixed session as the US government shutdown, which prevented the release of the employment report, clouded sentiment. Sovereign yields edged lower in the euro area and stocks mostly advanced, while US Treasury yields ended higher, and equities were mostly flat weighed down by the underperformance of tech stocks.
Following the resignation of French premier Lecornou, French assets sold off with stocks paring losses and the yield on the 10-year sovereign benchmark rising to push the country's risk premium to 85bp, above Italy's. Contagion to the rest of the euro area was limited, with peripheral risk premia stable and stocks paring mild losses. The EURUSD held at 1.17.
Sentiment recovered in the euro area after a few sessions of cautious trading following the resignation of France’s Prime Minister. Sovereign yields fell and peripheral risk premia narrowed slightly, although France’s remains elevated and above Italy’s. The region’s main equity indices advanced.
On Friday, equity markets on both sides of the Atlantic opened with losses as investors weighed concerns about credit quality in the US after two US regional lenders disclosed loan issues. However, during the day those concerns eased, allowing the US indices to close with gains and the Europeans to partially recover.
Without any significant drivers, markets traded without a clear direction during yesterday’s session, pausing the previous’ days strong risk-on sentiment. Treasury yields edged lower in the US ahead of the Fed’s meeting next week (expected to lower interest rates by 25bp). European government yields fell across the region, keeping peripheral risk premia constant.
For the second consecutive day, markets traded without a clear direction. Government yields ended flat on both sides of the Atlantic while stocks mostly fell, with some exceptions in the euro area, amid reports that the Trump administration is considering to curb exports to China made with US software.
Investors ended the week on an upbeat note. Euro area PMIs suggested activity expanded during October (the composite index rose from 51.2 to 52.2), leading to higher sovereign yields and gains in the main equity indices. Cooler-than-expected U.S. inflation reinforced expectations of a Fed interest rate cut and boosted stock markets. The EURUSD held close to 1.16.
Markets had a relatively calm session ahead of the Federal Reserve meeting today, where it is widely expected to lower interest rates by 25bp. Sovereign yields were mostly flat on both sides of the Atlantic, while the EURUSD cross held steady around 1.16. Equities advanced in the US on the back of a strong earnings season and were mixed in the euro area.
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.
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.
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.
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 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 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.