Mario Draghi met Italy's president Sergio Mattarella on Wednesday and agreed to try to form a government of national unity after the recent collapse of the government coalition. It is however uncertain whether Draghi will be able to put together a willing coalition of parties.
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Markets started the week showing greater risk appetite as the World Health Organization listed AstraZeneca and Oxford University’s COVID-19 vaccine for emergency use. Stocks rose across advanced and emerging economies, the USD weakened moderately and commodity prices edged up. U.S. markets were closed for the Presidents day holiday.
The sell-off in the US bond market continued on Monday as worries about inflation erode expected bond returns. The yield on 10-year Treasury notes rose 3 basis points to 1.37%. These worries also hit Asian markets, where Japan's 10-year yields rose to 0.13% and Australia's rose to its highest level since June 2019 (1.61%).
Optimism about the economic recovery favored a rotation into cyclical equities as investors digested the U.S. Senate's approval of Biden's $1.9tn fiscal package. European stocks rose across the board while tech-related stocks sold off and weighed on the U.S.' Nasdaq and S&P 500 benchmarks.
Investors traded in a positive mood as the OECD signaled a brighter economic outlook. According to its updated forecasts, the world economy is set to grow by 5.6% and 4.0% in 2021 and 2022. The OECD estimates that spillovers from the U.S. fiscal stimulus will add more than 1pp to global growth.
Stocks rose across the board as Biden's $1.9tn fiscal package won final approval in the U.S. Congress and CPI data calmed inflation worries. In particular, U.S. CPI inflation rose to 1.7% yoy in February but core inflation nudged down to 1.3% (see our take and why we expect inflation to be under the spotlight in the coming months here).
Investors continued to trade in a mixed mood in yesterday's session. Commodity prices declined across the board while the USD strengthened. Stocks were mixed, advancing in Asia and Europe but declining moderately in the U.S.
Investors started the week with a cautious mood as they wait for the release of this week's Q1 corporate results and the ECB monetary policy meeting.
In yesterday's session financial markets experienced risk aversion flows. Despite the positive results presented by some companies, the increase in COVID cases around the globe led investors to move from equities tied to the economic cycle to safer assets such as sovereign bonds, gold and safe haven currencies.
Yesterday, investors traded with cautious optimism after two days of consecutive declines in stock markets. The announcement that the German constitutional court will not initially block the NGEU package (€750bn) contributed to investors' optimism. Opposition argued that the EU was exceeding its powers by issuing such large amount of debt.
Global stocks tumbled on Tuesday, with the tech sector in Europe suffering its biggest drop since October, mirroring a selloff on the Nasdaq (-1.9%, sharpest fall since March). The decline was driven by comments from U.S. Treasury Secretary Janet Yellen warning that interest rates may need to rise to prevent the economy from overheating.
During a volatile session, markets erased some of the early gains after comments by Fed VP Richard Clarida noting that the central bank could start discussing in upcoming meetings adjusting the pace of asset purchases (tapering). In addition, house prices in the U.S. continued to accelerate while consumer confidence stalled.
Financial markets recorded another day with positive results, following the release of solid economic data in the U.S.: new jobless weekly claims fell to a new pandemic-era low and core capital goods orders rose by 2.3% in April, in both cases above expectations. U.S. Treasury Secretary Yellen also reiterated that the rise in inflation should be transitory.
In the last session of the week, global stocks remained near record highs lifted by the ongoing economic recovery from the pandemic and injections of fiscal and monetary policy stimulus.
In the last session of the week, investors traded with a positive mood amid robust employment data in the U.S. Non-farm payrolls rose by +559k in May (consensus expected +675k on average) and the unemployment rate dropped by 0.3 p. p. to 5.8%.
In the first session of the week, investors extended the positive tone seen during last Friday. In the euro area, economic data releases came in better than expected (EZ Sentix Investor Confidence rose in June to 28.0 from 21.0 and Spain's industrial production rose by 1.2% mom in April).
Financial markets extended the gains on Tuesday, with investors' sentiment boosted by dovish comments on inflation and monetary policy from some key Fed officials. As a result, stocks in the US fluctuated around record highs while the decline in US treasury yields stabilized. In Asia, equity indexes advanced further on Wednesday.
Investors ended the day with positive results, after strong sentiment data in Europe (Germany’s Ifo business climate index rose to the highest level in two years) and labour statistics in the US (new jobless claims fell to 411,000 weekly). In addition, President Biden announced a deal in the Senate on an infrastructure package worth USD 1.2 trillion.
Treasury yields fell as Federal Reserve Chairman Powell testified before Congress that rising inflation is likely to be transitory and that the central bank would continue to support the economy. The Bank of Japan left its 10-year bond yield target unchanged at about 0% after concluding its meeting and also kept the policy-balance rate at -0.1%.
In yesterday's session, investors' sentiment improved and recovered from Monday’s lows amid upbeat corporate results. Stock indices in the euro area and in the US rose as traders bought the dip (the S&P 500 registered its biggest daily increase since March).