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Financial markets had a volatile session on Tuesday, driven by geopolitical headlines and with no major macro data releases. Eurozone government bond yields fell as several ECB officials speaking during the day supported a dovish ECB, notably Italy's Panetta, who said the ECB should focus on the sluggish economy and move rates to an expansionary stance.

Investors' risk appetite waned yesterday amid renewed tensions in the war in Ukraine. Government bond yields rose in the Eurozone, where data released yesterday showed that negotiated wage growth accelerated to 5.4% in Q3 from 4.6% in Q2, which could cause the ECB to reconsider its dovishness if this feeds through to inflation in the coming months.

Financial markets ended the week on a mixed note. In the US, November payrolls data showed that employment grew slightly more than expected (with October data revised upwards), but unemployment rose by 0.1% to 4.2% and wage growth accelerated slightly. Treasury yields fell and the probability of a -25bp cut by the Fed in December rose to 90%.

Investors kicked-off the week on a cautious note as they await the ECB's Governing Council meeting (on Thursday), widely expected to lower interest rates by 25bp, and US inflation figures for November (released on Wednesday), a key report for the Fed's decision next week.

US inflation for November came in line with expectations: headline inflation ticked up to 2.7% yoy (+0.3% mom), from 2.6% in October, and core inflation remained unchanged at 3.3% yoy (+0.3% mom). After the release, expectations for a Federal Reserve 25bp interest rate cut this month rose to almost 100%. 

Financial markets ended the week on a cautious tone as investors fully digested the ECB's decision to lower interest rates and as they positioned themselves ahead of the Fed's FOMC meeting later this week given the latest prices data: higher-than-expected import and producer prices during November.

The Federal Reserve lowered interest rates by 25bp to 4.25-4.50% and signaled it will slow down the pace of cuts given its upward revision to the inflation forecast for the next two years. The Fed considered that the good health of the labor market and the little progress made on inflation in the recent months gives it room to act more cautiously from now on.

In yesterday's session, global investor caution prevailed as markets awaited the release of U.S. employment data. Meanwhile, some Fed members commented yesterday that it is quite likely that interest rates will remain at current levels for a long time and will only be cut when inflation decreases.

Financial markets were mixed in yesterday's session. In the US, sovereign bonds yields continued on a decreasing path, following dovish remarks from Fed Governor Waller, suggesting that rate cuts are possible by June if future inflation data remains favorable. In this context, Euro area sovereign bonds yields also decreased.

Markets traded without a clear direction as investors remained cautious awaiting further announcements from the Trump administration and central bank meetings next week. ECB officials' remarks continued to support further interest rate cuts, while Fed officials are in the "blackout" period ahead of the meeting and cannot comment about monetary policy.

In yesterday's session, global stocks rose for a ninth day, boosted by comments from US President D. Trump, in a virtual participation at Davos, hinting at a potentially softer approach to tariffs on China. He also urged OPEC to lower crude prices and said he will push for interest rate cuts.

Sentiment recovered during yesterday’s session, as investors digested the announcement that US tariffs on Mexico and Canada will be delayed for at least one month. Trade war uncertainty, however, concentrated in Asia, as China announced retaliatory tariffs on targeted products coming from the US, to take effect next Monday.

A relative sense of caution prevailed in the US stock market, ahead of corporate earnings and January’s jobs data, while stocks edged up in the eurozone.

Market sentiment was mixed on Wednesday. On the one hand, higher-than-expected US inflation data for January (headline: 0.5% mom, 3.0% yoy; core: 3.3% yoy) pushed back market expectations for the next Fed rate cut from early summer to the end of the year, and the probability of a second cut went down to virtually zero.

Investor sentiment ended the week on a mixed note. Eurozone government bond yields rose moderately after the second reading of Q424 GDP came in slightly better than the first (0.1% QoQ vs. 0.0%), with peripheral spreads widening.

Investor risk appetite remained relatively high on Tuesday. In the eurozone, government bond yields were broadly unchanged. The ZEW index showed a rise in German investor sentiment in February, and ECB's Cipollone had some dovish comments on future interest rates, both of which offset news of future higher public spending on defence in the EU.

Investors' sentiment continued to deteriorate amid escalating trade tensions and Russia's initial refusal to agree to a truce in Ukraine. Equity markets ended lower, particularly in the US, and Treasury yields fell as investors increased their demand for safe-haven US government debt. Oil prices declined as markets weighed the risk that the tariff war could dampen global energy demand.

Correction session for the markets, characterised by nervousness ahead of the looming tariff threat on April 2nd, as referenced by central banks, and an upcoming corporate earnings season that may begin to reflect these concerns in companies' forecasts.