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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.

Markets kicked off the week in a rather calmed tone as investors await key economic data this week which will provide them further clues regarding future interest rate cuts. On the data front, NY Fed’s January Consumer Expectations Survey found that respondents expect 1-year inflation to remain at 3%, the lowest reading in three years.

Financial markets reversed part of the large movements from the previous session following the US January CPI report. Sovereign bond yields fell on both sides of the Atlantic, while equity markets recovered most notably in the US.  The VIX volatility index fell below 15 once again.

In the last session of the week, higher-than-expected US PPI inflation data in January (0.3% m/m from -0.1% in the previous month) pushed back the expectations of interest rate cuts from the Federal Reserve and favored an increase in sovereign bond yields on both sides of the Atlantic.

In the last session of the week, yields on sovereign bonds continued to increase, modestly, as investors’ expectations on official interest rates continued to be revised to the upside. In particular the probability of observing the US Federal Reserve cutting rates in June or earlier stands currently at 63% (96% earlier in the month).

Investors traded cautiously during yesterday’s session as they digested a mixed bag of economic data releases. Euro area March inflation cooled to 2.4% y/y from 2.6%, slightly below consensus. In the US, the ISM services index surprised to the downside by falling to 51.4, down from 52.6 in February, while the ADP employment report surprised to the upside.

Markets ended the week on a risk-off tone, with sovereign bond yields falling across the board, equities selling off, and the US dollar strengthening (to $1,06 against the euro), as geopolitical tensions rose in the Middle East and investors sought safe-haven assets. Brent rose above $90/barrel as worries about potential supply disruptions mounted.

Generalized risk-off sentiment in yesterday’s session as markets remained attentive to further developments in the Middle East and as expectations of interest rate cuts, especially in the US, are delayed. Sovereign bond yields rose across the board and equities sold off globally, while the US dollar ended slightly higher, and Brent held steady at $90/barrel.

In yesterday’s session, US Q1 GDP data release centered the stage in financial markets as it showed that, despite the moderation in headline GDP growth (+0.4% q/q from 0.8% in Q423), the US economy remains robust. The 0.6% increase in private consumption and the acceleration of investment (1.3%) were the brighter news in GDP.

Financial markets ended the week with a risk-on session following the release of the US PCE deflator, the Fed’s preferred inflation measure, which came mostly in line with expectations at 2.7% yoy (+0.3% mom) up from 2.5% in the previous month. Furthermore, US personal spending data beat expectations advancing 0.8% in March vs 0.6% estimated.

In the last session of the week, investors reassessed their expectation for the Fed’s interest rate path ahead as the US April employment report showed a cooling labor market. In particular, job creation slowed from 315k to 175k, way below consensus expectations, the unemployment rate ticked up to 3.9% and wage growth decelerated to 0.2% m/m.

In the first session of the week, investors weighed somewhat better-then-expected economic data releases in the euro area with dovish comments from central bank officials on both sides of the Atlantic. On the latter, Richmond Fed president Thomas Barkin said that current interest rates are sufficient to bring inflation back to target.

In yesterday's session, the release of May's flash PMIs for the main advanced economies and corporate earnings took center stage in financial markets. On the former, the manufacturing and services indices rose in the US, leaving the composite index at 54.4 (a two-year high).

Markets kicked-off the week on a risk-on tone following the release of weak manufacturing data in the US which boosted expectations the Fed will have room to lower interest rates this year. Specifically, the ISM manufacturing purchasing managers index for May fell to 48.7 from 49.2, and the prices paid component surprised to downside.

Investors' risk appetite increased on Wednesday as the ADP jobs report for June surprised to the downside and the ISM services report came in below expectations at 48.8. Separately, the release of the latest FOMC minutes showed that Fed officials acknowledged a slight slowdown in the economy as well as easing price pressures.

Euro area investors kicked off the week on a cautious note as they digested the surprise results of the French legislative elections. The far-right RN came in third place, but the elections resulted in a political deadlock as no party won an absolute majority. 
 

Markets saw a risk-off session following the release of weak economic data in the US. The ISM Manufacturing Index for July fell for the fourth consecutive month and remained in contraction territory (46.8), signaling weakness in the manufacturing sector. Investors also await today's release of the employment report for July.

Investors ended August digesting inflation data which confirmed prices are moving in the right direction for the ECB and the Fed to cut interest rates in their September meetings. Specifically, euro are inflation cooled to 2.2% y/y last month, and the US PCE Price Index (the Fed's preferred inflation gauge) for July was unchanged at 2.5% y/y.