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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.

Markets had a muted reaction to President Biden’s decision to drop out of the presidential race and endorse Vice President Harris as the Democratic candidate. Sovereign bond yields were mostly unchanged on both sides of the Atlantic and the US dollar was flat against its main counterparts.

Investors’ attention during Friday’s session focused on the worldwide cyber outage that affected banks, airlines, and telecommunications companies. The software glitch unnerved investors and dragged down overall sentiment, affecting mostly equity markets which ended the session lower across the globe.

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".

Another session of mixed results across markets on Wednesday. Sovereign bond yields remained rather flat amid low trading volumes on both sides of the Atlantic. In the eurozone, all eyes were set on today’s ECB meeting, where the bank is expected to leave interest rates unchanged. In the US, Fed officials said they are “closer” to cutting interest rates.

Markets on both sides of the Atlantic saw mixed results yesterday. In the eurozone, where all eyes are on tomorrow’s ECB meeting, sovereign bond yields fell while peripheral spreads remained flat after the ZEW survey showed German business sentiment at its lowest in four months in July and despite the Q2 BLS showing an increase in credit demand.

Financial markets started the week with all eyes on the ECB’s Governing Council meeting on Thursday.  The ECB is expected to leave interest rates unchanged and stick to its "data dependency" approach. European sovereign bond yields fell and peripheral spreads tightened yesterday ahead of the meeting and today's Q2 Bank Lending Survey.

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.

Market sentiment improved during yesterday’s session as investors turned their attention away from political instability in the euro area to monetary policy in the US. On his second day in Congress, Fed Chairman Powell said the Fed doesn’t need inflation below 2% before cutting interest rates and signaled the balance sheet run-off still has “ways to go”.

During yesterday's session, investors continued to assess the results of the French elections last weekend which left the country with a fragmented National Assembly. Financial markets seemed to value the situation negatively and adopted a risk-averse tone, sending euro area sovereign bond yields higher and equities sharply lower, particularly in France.

Euro area investors kicked off the week on a cautious note as they digested the surprise results of the French legislative elections. The far-right RN came in third place, but the elections resulted in a political deadlock as no party won an absolute majority. 
 

Thursday's session saw light trading volumes as US markets were closed for the 4th of July holiday. Without any major macroeconomic data releases yesterday, investors' focus remained on political sources of instability, as the UK held a general election (which Labour won by a Landslide) and polls suggested Le Pen's RN will not win an absolute majority.

The week began with eurozone investors digesting the results of the French parliamentary elections, in which Le Pen's RN did slightly worse than polls had predicted. Eurozone peripheral spreads tightened, although government bond yields rose as Lagarde said in Sintra that the ECB was in no hurry to cut rates further.

Financial markets ended the week in a risk-off mode despite Friday's inflation data showing that disinflation is progressing on both sides of the Atlantic: US core PCE came in at 2.6% YoY, as expected; and in the eurozone the HCPI prints for Spain, France and Italy were also broadly in line with expectations at 3.5% YoY, 2.5% YoY, and 0.9% YoY, respectively.

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.

In yesterday's session, euro area sovereign bond yields advanced, with a slight widening of peripheral spreads, while equities retreated amid weak sentiment. Consumer confidence indices in both Germany and France fell from their May readings. Several remarks from ECB officials including Lane and Schnabel reiterated the ECB's data-dependent strategy.

Markets kicked-off the week on a risk-on tone following the release of weak manufacturing data in the US which boosted expectations the Fed will have room to lower interest rates this year. Specifically, the ISM manufacturing purchasing managers index for May fell to 48.7 from 49.2, and the prices paid component surprised to downside.

Sentiment in sovereign bond markets during yesterday's session turned more positive following the revision of US GDP Q1, which showed the economy grew somewhat less than previously estimated (0.33% vs 0.42% q/q), giving the Federal Reserve more room to lower interest rates this year. Yields on sovereign bonds fell across the board.

The week finished off with a session without any significant movements as inflation figures released on Friday largely aligned with expectations. The US PCE deflator for April came in at 2.7% yoy, as expected. Euro area inflation rose to 2.6% yoy in May, just above the 2.5% expected, although the monthly variation recorded the expected 0.3%.