Investors traded cautiously in yesterday's session amid geopolitical risks and a readjustment of interest rate expectations. In particular, investors’ uncertainty regarding the decision the Bank of England will make rose following the latest higher-than-expected inflation figures for March at 3.2% yoy vs. 3.1% anticipated by consensus.
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uIn yesterday's session, investors weighed a higher-than-expected US Producer's Price Index for April and comments from Fed chair Jerome Powell, who remarked it is unlikely that the Fed will need to raise interest rates any further, despite having lower confidence that the 2% inflation target will be achieved soon.
In absence of key macroeconomic data releases, central bank communication continued to be the main driver for financial markets. Yesterday, divergent views on inflation and the interest rate path ahead on both sides of the Atlantic were made even more evident.
Investors traded cautiously ahead of key inflation data released later this week. Meanwhile, this month’s Conference Board consumer index in the US rose amid optimism about the labor market. The ECB’s consumer expectations survey showed 1-year and 5-year inflation expectations edged down 0.1 pp each to 2.9% and 2.4%, respectively.
The week began with European investors in a risk-off mood. Eurozone government bond yields rose on fresh hawkish comments from several ECB officials, including Lagarde, who emphasized the idea that the ECB could wait several meetings between cuts
Without any major macroeconomic news to trade on, sovereign bond markets had a relatively quiet session yesterday with only minor price changes: yields edged down in the euro area, but rose in the US. Equities were mixed, posting gains in the US boosted by tech mega-caps, while European indices declined as sentiment remained weak.
Markets were mixed in yesterday's session as investors digested a raft of economic data, including the final revision of US Q1 GDP growth, which confirmed the economy grew at SAAR 1.4% qoq, but showed private consumption grew by less than first estimated. On the labor market, weekly initial jobless claims dropped.
During Tuesday’s session, eurozone investors remained focused on French political risk, while US markets saw some thin trading volumes ahead of the 4th of July holiday. In the eurozone, government bond yields fell and peripheral spreads tightened as the May inflation reading came in line with expectations, easing slightly from May but with service costs stuck.
Investors ended the week with a modest appetite for risk. In the US, Treasury yields edged lower as June producer price data and the University of Michigan's one-year inflation expectations pointed to easing price pressures, bolstering expectations for a Fed rate cut in September.
A mixed session in financial markets on Thursday as the ECB left interest rates unchanged as expected. Lagarde said that eurozone growth was likely to have slowed in Q2 and expected wage growth to moderate in the coming quarters, but insisted that the September move remained "wide open".
Monetary policy expectations guided investor sentiment during yesterday’s session in euro area financial markets. On the macro front, the Eurozone consumer confidence index rose to –13 from –14 in July. US existing home sales fell more than expected in June, while house prices hit another record high.
Investors started the week in a cautious mood awaiting several key events: from Central bank meetings across many developed economies, to a raft of important economic data and companies' earnings. In the data front, today Q2 GDP figures will be released for the eurorozone aggregate and its main economies, as well as some inflation data for July.
Markets traded on a risk-off tone for a second session in a row after data showed the US labor market continues to cool, boosting expectations the Fed will cut interest rates at its next meeting. In particular, job openings in July (JOLTS) fell to the lowest level since 2021.
Risk-off mode took over financial markets on Friday, as the US employment report showed a cooling labour market. Hiring in the US is slowing down, but not falling off a cliff, so implicit interest money market rates are still discounting a 25 b.p. cut from the Fed at its September meeting.
Financial markets had a mixed session on Wednesday. As investors awaited today's ECB meeting, the biggest macro driver yesterday was the US CPI report for August, which showed that prices rose in line with expectations (0.2% MoM), but core inflation showed some stickiness (0.3% MoM) due to higher than expected costs for housing and other services.
Investors ended the week on a risk-on tone as monetary policy expectations drove sentiment during Friday's session. The likelihood of a 50 b.p. rate cut by the Fed this week rose to almost 50%.
China’s central bank triggered a risk-on mood in financial markets yesterday by introducing the largest stimulus package since the pandemic to support its faltering economy: it reduced reserve requirements for banks, cut a key repo rate, and lowered the mortgage rate for homeowners.
Thursday's markets saw a mixed session across asset classes and geographies. In the Eurozone, peripheral spreads fell for all countries except France as the poor fiscal outlook continued to weigh on the country's sovereign debt.
Financial markets started the week with subdued trading, as debt and money markets in the US were closed for a Federal holiday. Eurozone sovereign bond yields were fairly flat, with peripheral spreads narrowing slightly, as investors continued to focus on Thursday's ECB meeting, for which they expect a 25bp interest rate cut.
Revised inflation figures for Spain and France reaffirmed market expectations of a 25bp interest rate cut at this week's ECB meeting. And, while industrial production for the euro block rose in August and sentiment indicators improved in Germany, the data are unlikely to prevent the central bank from delivering a cut.