Investors' risk appetite rebounded slightly last week, a trend that largely continued into Friday's session. In the eurozone, government bond yields rose slightly, even though ECB's Holzmann, who had been advocating for a pause in rate cuts, acknowledged the disinflationary impact of tariffs and said the ECB's next rate decisions were "completely open".
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Financial markets were mixed during yesterday's session. In the US, sovereign bond yields decreased, reaching a three-week low as investors gained confidence the US Administration is searching for a tariff de-escalation through trade deals. In the euro area, sovereign yields increased, despite ECB officials warning uncertainty due to a trade war will bring lower growth.
A better-than-expected employment report in the US eased fears of a severe economic downturn, pushing expectations of a first Fed rate cut back one meeting to July and lowering total expected cuts in 2025 from four to three. Sovereign bond yields rose on both sides of the Atlantic following the report and stock markets rallied.
Investors kicked-off the week with a quiet session following last week's heavy-data week, which included US Q1 GDP and euro area inflation. This week, markets' attention will shift back to central meetings. The Fed is expected to hold rates steady in Wednesday, and the BoE is expected to deliver a 25bp rate cut on Thursday.
Investors traded cautiously during yesterday's session. Concerns over the US debt rating downgrade continued to weigh on US assets, driving long term Treasury yields higher and US stocks lower, with the S&P 500 ending six straight sessions of gains. Hawkish remarks from Fed officials further dampened sentiment.
Investor risk appetite ended the week positively, as US non-farm payroll figures for May came in higher than expected, with job creation gradually cooling (139k in May versus 147k in April), though there are still no major signs of strain from Trump's tariffs. This should give the Fed more time before cutting rates, causing Fed Funds futures and US Treasury yields to rise.
Markets traded cautiously as investors awaited news regarding trade negotiations between the US and China. The World Bank cut its global economic growth forecast, pointing to uncertainty brought by trade war as the main cause. In today's session, financial markets will focus on US CPI data for May.
Amidst elevated geopolitical risks, investors traded cautiously ahead of the FOMC's meeting. The Fed left rates unchanged and still forecasts two rate cuts in 2025 (showing greater dispersion and a slightly hawkish bias than before) but signalling a slower pace of easing ahead. Powell warned that tariffs could push inflation for goods higher over the summer.
Markets ended the week on a cautious note as heightened tensions in the Middle East, renewed trade uncertainty, and monetary policy actions weighed on investor sentiment. Sovereign bond yields fell on both sides of the Atlantic as demand for safe-haven assets rose.
U.S. sovereign yields advanced, the USD strengthened moderately and stocks rose after a solid labor market report and as House Republicans came together to pass Trump's budget bill (OBBBA). Investors trimmed expectations about Fed cuts, with market-implied odds of a July cut down to 5% from 25%, and futures on December 2025's FFR rose over 10bp.
Investors ended the week in a cautious mood. With U.S. markets closed on Friday for Independence Day, European stock markets declined across the board while euro area sovereign yields were little changed in both core and peripheral countries. The euro fluctuated close to, but below, $1.18.
Investors traded in a mixed mood in a session in which Donald Trump threatened a 35% tariff on Canada (for goods outside USMCA) and floated the idea of a 15%-20% global baseline tariff rate (currently, 10%). Stocks advanced modestly in the U.S. but declined in Europe. Sovereign yields rose, and the EUR weakened and traded below $1.17 (touching 10-day lows).
Sentiment recovered during yesterday's session following a stronger-than-expected U.S. retail sales report for June (+0.6% mom vs. 0.1% expected, and up from -0.9% in May), highlighting the resilience of the U.S. economy. Global stock markets advanced and the S&P 500 hit a new all-time high.
The risk-on mood triggered by trade negotiations continued to support markets but lost some steam in yesterday's session. Sovereign yields rose on the back of a hawkish reading of the ECB's meeting, while euro area and U.S. stocks posted moderate gains with a mixed sectorial performance (European banks rallied on favorable earnings and higher rates).
Markets seemed to shrug off the U.S. government shutdown in yesterday's session. Global stocks rose and U.S. sovereign yields declined amid weak U.S. labor market data. Euro area sovereign yields were little changed, and the euro held steady at $1.17. Gold also steadied after having rallied in the last few days.
Sentiment recovered in the euro area after a few sessions of cautious trading following the resignation of France’s Prime Minister. Sovereign yields fell and peripheral risk premia narrowed slightly, although France’s remains elevated and above Italy’s. The region’s main equity indices advanced.
Monday’s session extended the risk-on sentiment from Friday. Strong earnings results from US companies and the easing of trade tensions between China and the US boosted global stock markets, with volatility dropping.
As expected, the ECB kept interest rates unchanged (depo at 2%) and reinforced its meeting-by-meeting data-dependent strategy. Euro area sovereign yields edged higher, and equities had a mixed session across the region. On the macro front, euro area GDP grew 0.2% qoq in Q3 (1.3% yoy), up from 0.1% qoq in Q2.
Investors started the week in a mixed mood. US Treasuries rose modestly amid growing divisions within the FOMC, as Miran reiterated the need for aggressive rate cuts, citing what he described as tight financial conditions, while Goolsbee warned against easing prematurely given persistent inflation.
The week started on a risk-off tone. Equities fell across the board, particularly in the US, as several Wall Street CEOs and major banks warned of potential drawdowns and concerns over overstretched valuations. European and Asian indices also declined, albeit more modestly, with Spain’s Ibex closing flat.