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Sovereign bond yields fell for a second consecutive day on both sides of the Atlantic as softer-than-expected job openings data in the US reinforced expectations the Fed will lower rates this year. In the euro area, markets await the ECB tomorrow, which is widely expected to lower interest rates by 25 bp.

Thursday’s session saw a mixed performance across assets as investors grappled with a mixed bag of economic data and the latest Fed decision. In the US, Treasury yields were lower after the rise in initial jobless claims and the decline in the Producer Price Index raised investors’ expectations of a Fed rate cut in September.

A quiet session on Wednesday as US markets were closed for the Juneteenth holiday. In the eurozone, government bond yields rose and peripheral spreads widened after the European Commission opened an excessive deficit procedure for France, Italy, Belgium and five other member states under the 2024 European Semester Spring Package.

The week ended with investors in a risk off mode in the financial markets. In the eurozone, PMI data for France and Germany came in below expectations and below last month's levels, while in the US the index rose slightly from May.

The week began with eurozone investors digesting the results of the French parliamentary elections, in which Le Pen's RN did slightly worse than polls had predicted. Eurozone peripheral spreads tightened, although government bond yields rose as Lagarde said in Sintra that the ECB was in no hurry to cut rates further.

Investors ended the week focused on the US employment report for June, which signaled the labor market is cooling as job creation slowed and the unemployment rate ticked up from 4.0% to 4.1%. This boosted expectations for two rate cuts this year, which sent Treasury yields lower and stocks higher, with the Nasdaq and S&P 500 hitting new record highs.

Market sentiment improved during yesterday’s session as investors turned their attention away from political instability in the euro area to monetary policy in the US. On his second day in Congress, Fed Chairman Powell said the Fed doesn’t need inflation below 2% before cutting interest rates and signaled the balance sheet run-off still has “ways to go”.

Lower-than-expected PMIs for July in the euro area (services 51.9 vs. 52.9 expected, and manufacturing 45.6 vs. 46.1 expected) sent the region's sovereign bond yields higher. Equities were mixed, ending mostly lower, while the PSI20 advanced and the Ibex-35 ended flat, boosted by the energy and utilities sectors.

Investors ended the week with renewed risk appetite as inflation data released during the day was broadly in line with expectations. In the US, the core PCE price index rose 0.2% month on month in June, as expected, bolstering hopes of a Fed rate cut in September. In the eurozone, 1 and 3 year inflation expectations remained at 2.8% and 2.3% respectively.

The Federal Reserve left interest rates unchanged at 5.25-5.50%, as expected, and hinted that if inflation readings continue in the right direction, a September rate cut "could be on the table." Markets reaffirmed their expectation of three 25bp interest rate cuts for the remainder of 2024. Treasury yields fell by +10bp, and US equities rallied.

Markets had an intense risk-off session following weaker-than-expected manufacturing data in the US, and as investors position themselves for the US jobs report on Friday, which could determine the Fed's next move. In particular, the ISM index for July came in at 47.2, slighlty higher than last month's, but still in contractionary territory.

The Federal Reserve's decision to lower interest rates by 50 bp sent global stocks soaring during yesterday's session. Equities climed more than 2% in the euro area, and in the US, the S&P 500 reached a new all-time high, as stocks priced in the soft-landing scenario.

Financial markets had a mixed start to the week as investors tried to reconcile seemingly contradictory signals. In the eurozone, government bond yields fell after September's PMI showed a weak manufacturing sector weighing heavily on the core economies. A sharp, unexpected deterioration in the French services PMI also pushed up the country's spread.

Inflation eased below 2% in Germany and Italy in September (1.6% and 0.7% yoy, respectively), as it did in Spain and France. ECB President Lagarde remarked recent data has strengthened the central bank's confidence in the return of inflation to target, sending the probability implied by futures markets of a 25bp cut in the October meeting to 90%.

Financial markets struggled to find a clear direction amid heightened geopolitical tensions in the Middle East. Oil prices had a volatile session, with the Brent reference touching $76/barrel in intraday trading, to close at around $74/barrel. Equity markets closed with slight losses in the euro area and flat in the US, while the volatility index remained elevated.

The ECB cut interest rates by 25bp for the third time since June, and as expected by financial markets, lowered the deposit rate to 3.25%. The decision was based on increased confidence that inflation is close to target and a shift to a more negative short-term outlook for the euro area economy.

Investors ended the week on a positive note, as risk appetite increased on the back of the ECB’s rate cut, another round of stimulus measures announced by the Chinese authorities, and strong Q3 US corporate earnings.

Investors started the week in a risk-off mood as polls showed a tight race in today's US presidential election, which could potentially delay the vote count for weeks. Government bond yields were mixed in the eurozone and fell in the US, especially the longer-dated references, as traders await this Thursday's Fed meeting.

Investor's mood all over the world was driven by Trump's victory in the US election, which was larger than expected and avoided uncertainty and volatility in financial markets. Trump's economic plans, which could boost the US economy in the short term, but reduce potential growth and create inflation in the long term, shaped investor's reaction. 

Investor risk appetite remained fairly high as the US election results were digested. The Fed cut rates by 25bps yesterday as expected (as did the BoE) noting an easing labour market and robust economic growth. Investors regarded the rise in US jobless claims last week as due to hurricane disruptions. Treasury yields fell, reversing some of the previous day's moves.