Markets were volatile during yesterday's session, as US stocks reversed the losses of earlier in the day. The S&P 500 gained 0.1% on the day after being down 1.8% at one point earlier on Tuesday. The tech-heavy Nasdaq Composite was down 3.9% in early trading before reversing part of the losses and ending the day down just 0.5%.
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The global stock rout deepened on Thursday as the sell-off in US Treasuries continued affecting markets across the world. The yield on 10-year US sovereign bonds rose sharply to 1.53%, and the 5-year yield jumped 21 basis points, the second-largest one day increase seen in the past decade, as investors anticipated large stimulus measures.
In the last session of the week, investors traded cautiously as they continued to weigh accelerating economic growth and inflation expectations for the US. In this context, the S&P 500 ticked down, the Nasdaq rose and euro area indices declined following previous' day losses in the US.
Markets started the week on a positive note as investors eyed a heavy economic calendar in the days ahead. This morning the Bank of Japan left monetary policy unchanged, and today the Fed starts its two-day meeting. Corporate earnings reports and the release of GDP and inflation figures will also be under the spotlight in the next few sessions.
Investors traded with cautious optimism at the start of the week, looking through the persistent threat of the pandemic while focusing instead on the relative success of the vaccine rollouts in much of the developed world.
Yesterday, investors traded with caution and did not get agitated with the news coming from the US inflation report and the ECB monetary policy meeting. The VIX index declined and shares fell modestly in the euro area and increased in the US (the S&P 500 reached a new all-time high). Sovereign yields edged down in both regions.
In the first session of the week after the Fed meeting, monetary policy and inflation remained the key focus for investors. Robert Kaplan and James Bullard explained that starting the tapering discussion was positive while Jerome Powell noted that the Fed will keep stimulus in place for as long as it takes to complete the recovery.
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.
2020 will go down in history as the year of COVID but it will also be remembered that, faced by a very difficult situation, the response provided by the food chain was extraordinary, guaranteeing an uninterrupted supply to all Spanish households. A year and a half later, the primary sector still looks remarkably dynamic, although the exceptional growth rates posted during the most critical months of the pandemic have now been left behind.
Investors started the week with a mixed tone as they digested the positive employment data in the U.S., strong corporate earnings and comments from central bankers in both sides of the Atlantic. For the Fed, Richard Clarida said that if the economic outlook advances as expected, conditions for rising interest rates will be met by year-end 2022.
Within a context of gradual recovery in the Spanish economy throughout 2021, the real estate market has displayed a very positive trend, especially in terms of demand. Despite the challenges of 2022, the forecast is for house sales to reach 500,000 and prices to grow by around 4%.
In the last session of the week, investors continued to digest the hawkish messages of the minutes of the last Federal Reserve meeting as well as relevant economic data releases. In the US, non-farm payrolls increased in December by 199k (consensus expected +400k) and the unemployment rate declined by 0.3 pp to 3.9%.
Investors remained worried about the escalation on the Russia-Ukraine crisis and volatility in financial markets continued to increase. Yesterday, the US announced sanctions against Russia while the EU and UK signaled they would take similar actions if there are no changes on the Russia stance on Ukraine.
In the first session of the week, investors remained concerned about the developments in Ukraine and mounting inflationary pressures in advanced economies. Their expectation for a tighter monetary policy from the ECB and the Federal Reserve pushed interest rates up.
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-off sentiment returned to financial markets on Wednesday, as investors reassessed the outlook for the global economy amid the jump in inflation and the rapid withdrawal of monetary policy accommodation. These factors are weighting in the earnings projections of the private sector.
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 closed the week trading with a risk-on mode, recovering some of the losses of previous sessions following the hawkish rhetoric by major central banks, including the 75 bp interest rate hike by the ECB and comments by Fed Chairman Jerome Powell, who reiterated the need to act forthrightly on inflation “until the job is done”.
Yesterday, investors continued to digest the hawkish tone of the main central banks. The Bank of England and the Swiss National Bank decided yesterday to hike interest rate by 50 bp and 75bp to 2.25% and 0.50%, respectively. In the UK the central bank also decided, unanimously, to gradually reduce the size of its balance sheet.
Investors continued to trade cautiously at the start of the week, with risk sentiment negatively affected by the escalation in the war in Ukraine, new outbreaks of COVID cases and the reimposition of some restrictions in China as well as investors’ gloomy outlook for corporate profits, ahead of the start of the Q3 earnings season later this week.