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Investors continued digesting this week’s data releases in the US, including the CPI report, retail sales, and new data showing industrial production stalled in April after growing 0.1% in March. In the euro area, remarks from ECB officials including De Guindos, Centeno and De Cos, all pointed to June for an interest rate cut but asserted caution thereafter.

Investors started the week trading cautiously in a session without major economic events. Central bank officials’ comments, then, took center stage with different FOMC members insisting that the latest inflation readings have not given them enough confidence to start cutting rates at this stage.

In yesterday’s session, investors focused their attention to the release of the last FOMC meeting minutes, which reinforced previous communication that Fed members still expect inflation to return to 2% over the medium term, while acknowledging that it will take longer than previously anticipated.

Investors continued to adjust their expectations for future interest rate cuts following strong PMIs, higher-than-expected wage growth in the euro area, and some hawkish remarks from central bank officials. Markets are now pricing in just two cuts from the ECB this year and one cut from the Fed, down from three and two, respectively, last week.

Sentiment in sovereign bond markets during yesterday's session turned more positive following the revision of US GDP Q1, which showed the economy grew somewhat less than previously estimated (0.33% vs 0.42% q/q), giving the Federal Reserve more room to lower interest rates this year. Yields on sovereign bonds fell across the board.

As expected, the ECB lowered interest rates by 25 bp, taking the depo and refi rates to 3.75% and 4.25%, respectively. As for its next steps, the ECB once again remarked future decisions will be “data-dependent”, noting that the inflation path will not be exempt from surprises.

The week ended on a ‘higher for longer’ note, which weighed on assets. US non-farm payrolls for May showed a greater-than-expected job creation and an acceleration in average hourly earnings growth, while euro area compensation per employee also surprised on the upside, sending sovereign yields higher across the board on both sides of the Atlantic.

Investor sentiment was mixed on Thursday. In the eurozone, political uncertainty following the upcoming snap elections in France, with Moody’s even issuing a credit rating warning on the country, weighed on equities, with French banks suffering the most.

Eurozone investors closed last week by reducing their risk exposure as the chances of a new French parliament willing to increase the country's budget deficit increased. This pushed eurozone government bond yields lower, although spreads widened, particularly on French bonds. Equity indices also fell across the board.

The week started on a mixed note for financial markets. Eurozone government bond yields rose across the board, with peripheral spreads narrowing in stark contrast to French spreads, which widened again. However, equity performance was more mixed across the region, with French indices rising on comments from Le Pen’s party on their respect for institutions.

Investors kicked off the week with a somewhat quiet session as they await key inflation data later this week: June CPI for France, Spain and Italy; and the US PCE deflator, the Fed's preferred inflation measure.

Financial markets ended the week in a risk-off mode despite Friday's inflation data showing that disinflation is progressing on both sides of the Atlantic: US core PCE came in at 2.6% YoY, as expected; and in the eurozone the HCPI prints for Spain, France and Italy were also broadly in line with expectations at 3.5% YoY, 2.5% YoY, and 0.9% YoY, respectively.

During yesterday's session, investors continued to assess the results of the French elections last weekend which left the country with a fragmented National Assembly. Financial markets seemed to value the situation negatively and adopted a risk-averse tone, sending euro area sovereign bond yields higher and equities sharply lower, particularly in France.

Yesterday’s session centered around the June inflation report from the US: inflation cooled to 3.0% in June (from 3.3% in May) and core inflation fell to 3.3% from 3.4% last month. On a monthly basis, prices fell –0.1%, the first negative rate in four years. Markets are discounting two interest rate cut from the Fed in 2024, and a 40% probability of a third cut.

Financial markets started the week with all eyes on the ECB’s Governing Council meeting on Thursday.  The ECB is expected to leave interest rates unchanged and stick to its "data dependency" approach. European sovereign bond yields fell and peripheral spreads tightened yesterday ahead of the meeting and today's Q2 Bank Lending Survey.

Markets on both sides of the Atlantic saw mixed results yesterday. In the eurozone, where all eyes are on tomorrow’s ECB meeting, sovereign bond yields fell while peripheral spreads remained flat after the ZEW survey showed German business sentiment at its lowest in four months in July and despite the Q2 BLS showing an increase in credit demand.

Investors’ attention during Friday’s session focused on the worldwide cyber outage that affected banks, airlines, and telecommunications companies. The software glitch unnerved investors and dragged down overall sentiment, affecting mostly equity markets which ended the session lower across the globe.

Markets had a muted reaction to President Biden’s decision to drop out of the presidential race and endorse Vice President Harris as the Democratic candidate. Sovereign bond yields were mostly unchanged on both sides of the Atlantic and the US dollar was flat against its main counterparts.

Investors traded cautiously ahead of today's release of the US jobs report. Other labor market data released yesterday, like the ADP report, showed non-farm private employment cooled in August, while weekly jobless claims fell, pointing to weakening demand in the labor market, although layoffs remain low.

Investors started the week with a greater risk appetite than the previous one. Sovereign bond yields were mixed among regions and maturities while, in the money markets, yields fell on both sides of the Atlantic.