Risk appetite recovered somewhat yesterday. In a volatile session ahead of today's announcement by Trump of reciprocal US tariffs on virtually every other country in the world, investors assessed a series of price and activity data as increasing the chances of rate cuts.
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Financial markets continued on a risk-off mode during Friday's session, as investors tried to assess the potential consequences of China retaliating on US tariffs, enacting duties on all US imports and export controls on rare earths. In this context, US sovereign yields fell, as investors expected the Federal Reserve will cut its intervention rate twice by July.
In yesterday’s session, global financial markets registered mixed movements, underscoring investor caution amid persistent geopolitical tensions and lingering economic uncertainty. In the United States, expectations for a potential rate cut in June gained traction after several Federal Reserve officials indicated a willingness to ease policy should signs of labour market weakness emerge.
Euro area financial markets were closed during yesterday’s session for May 1st holiday. In the US, a better-than-expected ISM manufacturing index, which also showed signs that input prices have been kept elevated due to tariff policy, lowered expectations of four interest rate cuts in 2025 and sent US Treasury yields higher.
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.
The Federal Reserve kept the federal funds rate unchanged at the 4.25%-4.50% range and highlighted that the risks of higher inflation and higher unemployment have risen. The decision had been widely discounted by markets and had little impact on financial assets. Markets still expect three cuts in 2025, starting in July, and Treasury yields ended the session mostly flat.
In yesterday's session, global financial markets delivered a mixed performance, shaped by the release of subdued economic data and growing expectations of potential interest rate cuts in the US. Investors also remained cautious amid ongoing speculation over possible peace talks between Russia and Ukraine.
The Spanish economy remains buoyant in a more challenging global context and a growing number of its sectors are in expansion. In this context, the sectors most exposed to the new protectionist shift in the US have the potential to redirect their exports to other global markets, while renewable energies can play a strategic role in the economy’s industrial competitiveness.
The week kicked off to a mixed start. US Treasury yields rose after Trump announced on the weekend the US will raise tariffs on steel and aluminium (25% to 50%) and accused China of breaching the trade truce agreement. Separately, the ISM and PMI surveys for May showed delivery times increasing, while prices paid by suppliers remained elevated.
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.
Financial markets were mixed during yesterday's session, ahead of May US CPI data to be released tomorrow. US and euro area sovereign bond yields closed the session slightly lower. Separately, news that Japan would be considering buying back bonds with very long maturity to prevent abrupt rises in bond yields, weighed on Japanese yields.
Financial markets were mixed during yesterday's session. US CPI for May came softer than expected, with core CPI increasing by 0.1% mom (vs. expected 0.3%) and 2.8% yoy (vs. 2.9% expected), and overall CPI climbed 2.4% yoy, as expected. Separately, Trump said that a US-China trade deal is "done", which could ease trade frictions between the two countries.
Investors turned cautious again on Tuesday as the Israel-Iran conflict continued. US Treasury yields fell ahead of the FOMC meeting, where the Fed is expected to leave rates unchanged as it seeks more clarity on the impact of tariffs. Yesterday's data releases showed a softening US economy in May: retail sales dropped by more than expected (although so-called "core" retail sales increased); import prices remained stable, surprising to the upside; and industrial production fell slightly.
A downward revision of US Q1 GDP, primarily due to weaker private consumption growth (0.1% qoq vs. 0.3% previously estimated), increased market expectations that the Fed could lower interest rates as much as 75bp this year compared to the 50bp expected before.
Markets started the week in a mixed mood as investors eye trade negotiations and the central bank meetings in Sintra. Market confidence in Fed rate cuts drove U.S. sovereign yields down, while euro area sovereign yields were little changed. The euro strengthened against the dollar and edged towards $1.18 (a 5-year high).
Investors traded cautiously in yesterday's session and, in the euro area, the major stock indices declined and sovereign yields edged lower. In a panel of central banks in Sintra, Fed's Powell acknowledged that the Fed would have already cut rates this year absent Trump's tariffs, while the ECB's Lagarde stated that inflation is at target in the euro area.
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 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).
US headline inflation rose to 2.7% (2.4% in May) and core inflation rose 0.1pp to 2.9%. A detailed breakdown showed prices have begun to rise in some goods categories, suggesting tariffs are beginning to impact. Investors pushed expectations of the first rate cut from September to October, and Treasury yields rose along the curve. The dollar slightly strengthened.
Markets ended the week in a cautious mood. Stocks were mixed, with European indices suffering moderate losses while the S&P 500 ended largely unchanged after having dipped earlier in the session. The earnings season kicked off with mostly solid results. Bitcoin closed "Crypto week" little changed (Trump signed the GENIUS Act on Friday).