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Speaking in the second day in Congress, Fed President Powell clarified that no decision had yet been made about the pace of monetary policy tightening, noting that the FOMC would consider higher rate hikes only if the totality of the data pointed in that direction. Before the next meeting, February inflation and employment data will be released.

Risk appetite returned to the fore on Tuesday, as investors reassessed the outlook for monetary policy across major central banks in the aftermath of the turmoil generated by the collapse of two regional banks in the US.

Risk aversion extended across financial markets during a volatile session on Wednesday, fueled by concerns about the health of the banking sector in Europe, in the aftermath of the collapse of some regional banks in the US and renewed concerns about the financial position of Swiss lender Credit Suisse.

Monetary policy decisions remained the key focus for investors on Thursday. The Bank of England and the Swiss National Bank raised rates by 25bp and 50bp to 4.25% and 1.5%, respectively, following the move by the Fed on Wednesday to hike rates by 25bp and to signal that there could be additional increases if financial turmoil recedes.

In the last session of the week, investors continued to trade with a risk-off mood amid continuing turmoil in the financial system. Doubts about the health of the banking sector led traders to think that central banks will have to stop hiking rates and start cutting them soon.

Economic data releases centered the stage on Tuesday, in particular the JOLTS survey, which showed job openings in the US fell to 9.9 million in February, down from 10.6 million vacancies in the previous month. This level, the lowest since May 2021, pushed down the vacancies for unemployed ratio from 1.9 to 1.7, still above historical average.

Risk aversion returned to the fore during a volatile session on Tuesday, with weak trade data in China resurging fears of a global economic slowdown and as there were no clear progress during the first talks between Democrats and Republicans to try to resolve the US debt ceiling standoff. Today the focus turns to the US CPI inflation data for April.

Financial markets closed with mixed results on Wednesday. On one side, inflation data in the US suggested upside pressures in core prices are moderating while, on the other, ECB officials reiterated the need for further policy tightening. Today, the Bank of England unveils its monetary policy decisions.

The first session of the week started with investors trading with a risk-on mode after a deal to raise the US debt ceiling between President Biden and House speaker McCarthy was reached. As the session advanced, however, optimism faded as traders looked forward to potential hurdles for passing the deal this week in the US Congress.

In the last session of the week, a mixed US labor market report left investors trading cautiously. While the pace of job creation eased to the lowest reading in 30 months in June (209k) and the previous two months were revised lower, wage increases remained elevated (4.4% y/y) and the unemployment rate ticked down to 3.6%.

Investors closed the week extending their appetite for risk, albeit consolidating and taking profits after the rebound recorded across asset classes in the previous sessions. Sentiment was also lifted by a positive start of the Q2 corporate earnings seasons, with better-than-expected results for the reporting large US banks.

The last stages of this cycle of monetary policy tightening centered the stage in yesterday’s session as the ECB hiked interest rates by 25bp (depo at 3.75% and refi at 4.25%). Nevertheless, Christine Lagarde said that this might not be the last hike and insisted that interest rates will remain high for a long period of time to break the back of inflation.

In the first session of the week, central banks remained the focus of investors’ attention, as they continue to digest the high-for-longer rhetoric. Yesterday, the hawkish tone of some FOMC members’ comments pushed US 10-year Treasury yields higher, fluctuating above 4.5%, a level not seen since late 2007.

Risk-off sentiment took over the market yesterday after the US JOLTS report showed an unexpected rise in job openings in August, which could support further rate hikes by the Fed, although comments from Fed officials on the day were mixed, with Mester leaning towards a hike at the upcoming meeting and Bostic opting to hold.

Volatility rose during the last session of the week amid heightened tensions in the Middle East, mixed corporate earnings, and expectations of the FOMC meeting later this week. Stocks fell across the globe, with US and European stock indices entering “correction” territory after falling 10%  their most recent peak in July.

In yesterday's session, the FOMC decided to leave interest rates unchanged at the 5.25%-5.50% target range. Despite describing the economic outlook with similar words than in September and not ruling out an additional rate hike, markets lowered the probabilities of a further tightening in the monetary policy stance. 

In Friday’s session, markets traded again with strong risk appetite as investors continued to price in the end of the central banks’ tightening cycle. US employment data showed signs of a cooling labor market, further fueling investors’ expectations of no further rate hikes. Markets are now pricing in a rate cut in June by the Fed and in April by the ECB.

Investors traded cautiously in yesterday’s session as they await the ECB’s decision and US macro data in the coming days. Sovereign bond yields edged higher across the board, while stock markets were mixed, falling in the euro area and modestly rising in the US. Chinese stocks rallied on reports of a government stimulus to stabilize stock markets.

Investors started the week in a mildly risk-on mood, with sovereign bond yields falling across the board. In the Eurozone, ECB officials speaking on Monday seemed confident about a future rate cut, although they remained inconclusive on the exact timing of it. US yields were weighed down by the Treasury's lower than expected Q1 borrowing forecast.