US January CPI report surprised markets by showing an increase in prices of 3.1% y/y vs 3.0% expected, down from 3.4% last month, with core inflation unchanged at 3.9%. The news shook markets, sending global government bond yields higher and equity markets sharply lower, while pushing back the expectation of the Fed’s first cut from May to June.
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In yesterday's session, mixed macroeconomic data releases were the main drivers in financial markets. On the one hand, Q4 GDP figures showed that Japan and the UK are in technical recession (with -0.1% and -0.3% q/q growth rates) and US retail sales and industrial production fell by 0.8% and -0.1% m/m, respectively.
In yesterday’s session investors traded cautiously as they await PMIs for advanced economies to be released on Thursday, the Fed’s and ECB’s minutes (out today and tomorrow, respectively) and key corporate earnings in the US.
Investors traded cautiously in yesterday’s session as they await key inflation data this week. The unexpected drop in US consumer confidence index to 106.7 (vs. 115 expected) from 110.9 in January, and the low levels on confidence in Germany (Consumer Confidence Index at -29 as expected), did little to move markets yesterday.
Macro data releases in the US yesterday gave investors mixed signals about the state of the economy. Higher-than expected producer price index (1.6% yoy vs 1.2% expected) and lower-than-expected retail sales (0.0% vs 0.4% expected) warned about sticky inflation and an economic slowdown, but unemployment benefit requests surprised to downside.
In yesterday’s session monetary policy continued to take center stage in financial markets. Investors positioned themselves ahead of today’s US Federal Reserve meeting (where no change in interest rates is expected and the focus will be placed on the dot plot) and weighed comments from ECB officials.
The future path of central bank official interest rates continued to be the main driver in financial markets, as investors reacted to the US Federal reserve meeting and to several ECB members’ speeches.
In yesterday’s session investors traded with a cautious mood as they await key US CPI data to be released this afternoon. Bloomberg consensus expects the headline and core indices to increase by 0.3% m/m, leaving the y/y rate at 3.4% and 3.7%, respectively.
Stronger-than-expected March retail sales in the US casted further doubts on the Federal Reserve’s motives to cut interest rates as soon as this summer. Markets now price a mere 20% probability of a cut in June, and 50% for July.
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.
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.