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Risk aversion returned to the fore during a volatile session on Tuesday, with investors sentiment faltered by the release of weak consumer confidence data and mixed signals from the ongoing Q1 corporate earnings season.

A more risk-on session was recorded across global markets on Thursday, as investors balanced out positive signals from corporate earnings results in the tech sector with mixed US economic data.

Financial markets closed with mixed results on Wednesday. On one side, inflation data in the US suggested upside pressures in core prices are moderating while, on the other, ECB officials reiterated the need for further policy tightening. Today, the Bank of England unveils its monetary policy decisions.

In the last session of the week, investors’ expectations on additional interest rate hikes by the US Federal Reserve were seen as more probable. That, together with debt ceiling concerns and an increase of inflation expectations seen in the University of Michigan survey, pushed US Treasury yields higher.

Signs of disinflationary pressures and a worsening of household and firm’s economic confidence in the euro area were yesterday’s main drivers in financial markets. Investors’ expectation of the official ECB interest rates was revised downwards between 10 and 15bp for 2023 and 2024.

In yesterday's session, investors traded cautiously ahead of a crucial vote in the US House of Representatives to raise the debt ceiling, which was finally approved. Also, disinflationary pressures were made more evident as inflation declined by more than expected in France and Germany while some Fed members insisted on pausing rate hikes.

Investors continued to trade with a positive tone as US Congress passed a law suspending the debt limit until January 1st 2025 and after further evidence of disinflationary pressures in some countries, which, in turn, is likely to lead to lower interest rates than previously expected from central banks.

A subdued session across financial markets at the start of the week, as investors digested a move by some OPEC+ countries for new oil production cuts, disappointing economic sentiment data and a new round of hawkish messages from some key ECB officials, including a call for more policy rate hikes by Christine Lagarde.

Investors traded with a more positive tone on Thursday, taking on board signs of cooling in the US labour market to adjust downwards their expectations for policy interest rates, ahead of next week's monetary policy announcements. 

Last week ended on a subdued note. Equity indexes were mixed, mostly lower in Europe but with some gains in the US, especially in the interest rate sensitive Nasdaq. Long-dated government bond yields were broadly lower, while shorter-dated yields rose, particularly in the US. Oil and commodities were lower following weak Chinese economic data.

A larger-than-expected decline in US inflation in May, from 4.9% yoy to 4.0%, increased the odds investors attach to a pause in the Federal Reserve interest rate hikes at today’s meeting. Nevertheless, core inflation declined by less than expected, from 5.5% yoy to 5.3%, pushing the Fed to, at the very least, maintain a hawkish tone.

As widely expected, the Fed held policy interest rates unchanged at the range of 5.00%-5.25%, although officials signalled that further hikes (of around 50bp by the end of the year) were likely to be needed, following upward revisions in their macro outlook for GDP growth, inflation and the labour market.

Yesterday’s session was dominated by the ECB’s 25bp hike, which brought the deposit facility rate to 3.5%, and by a hawkish tone from President Lagarde. She strongly hinted at a further 25bps hike in July, stating that the bank still had some ground to cover and was not considering a pause.

In the last session of the week, investors weighed better-than-expected economic data releases in the US with a hawkish tone from Federal Reserve officials. In particular, Christopher Waller and Thomas Barkin highlighted that inflation remains too high and stubbornly persistent, which might prompt a 25bp rate hike at the July meeting.

Yesterday’s session was marked by speeches from several central bankers. In the US, Fed Chairman Jerome Powell noted in his speech to Congress that he would not characterize last week’s decision as a pause, noting that additional 50 bp rate increases are a good guess of where monetary policy is headed, in line with the updated Dot-Plot.

The hawkish stance of central banks in advanced economies continued to center the stage in yesterday’s session. On the one hand, the Bank of England surprised with a 50 bp hike (25bp were expected by the consensus) to set the official interest rate at 5%, the highest level since 2008.

In yesterday’s session, investor sentiment was soured by data showing the resilience of the US economy and its labour market. Private surveys showed that US companies added the most jobs in over a year in June, and the services sector expanded faster than expected, which investors fear will allow the Fed to continue raising rates.

In the last session of the week, a mixed US labor market report left investors trading cautiously. While the pace of job creation eased to the lowest reading in 30 months in June (209k) and the previous two months were revised lower, wage increases remained elevated (4.4% y/y) and the unemployment rate ticked down to 3.6%.

Investors started the week trading with a cautious mood, still digesting the mixed US employment report released on Friday and awaiting tomorrow's key CPI inflation data. Also, comments from San Francisco Federal Reserve President Mary Daly pointed to further interest rate increases even if signaling the end of the hiking cycle is nearing.