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In the first session of the week, central banks remained the focus of investors’ attention, as they continue to digest the high-for-longer rhetoric. Yesterday, the hawkish tone of some FOMC members’ comments pushed US 10-year Treasury yields higher, fluctuating above 4.5%, a level not seen since late 2007.

Yesterday’s session saw global equity markets mostly lower and government bond yields rising as investors continued to digest the “higher for longer” interest rate narrative and some weaker than expected US economic data releases.

Yesterday investors traded cautiously as the threat of a possible US government shutdown by the end of the week and “high for longer” interest rates continue to lead the narrative. Investors were also at odds with Minneappolis Fed President Neel Kashkari’s dovish tone regarding interest rates path ahead.

Stock markets advanced in the US, Europe and Asia while sovereign yields remained stable. In Spain, markets underperformed their peers as stocks declined and sovereign spreads rose.

Yesterday's session was filled with economic data releases. In the US, Q2 2023 GDP revision left growth unchanged from previous estimates at 2.1% SAAR, and personal consumption had its slowest increase in a year. In Europe, September inflation in Germany eased to 4.5% y/y from 6.1% in August but ticked up in Spain to 3.5% from 2.6%.

Investors traded with a slightly higher risk appetite on Friday as several key inflation data points on both sides of the Atlantic fell and despite the risk of a US government shutdown, which was eventually averted over the weekend, rose. Eurozone inflation fell to a 2-year low, with core CPI showing positive momentum and US core PCE also moderating.

Investor sentiment diverged slightly on both sides of the Atlantic at the start of the week. In the US, the ISM survey showed a manufacturing sector close to recovery while Fed's Bowman gave hawkish signals on future interest rates. This pushed Treasury yields higher while equities fared slightly better, with the Nasdaq up and the S&P500 flat.

In yesterday’s session, economic sentiment data releases were the focus of investors’ attention. In both Europe and the US, better-than-expected, but still weak economic data, pushed sovereign yields down on both sides of the Atlantic amid an upward trend in previous sessions.

In yesterday’s session, investors traded with mixed sentiment as they navigate through heightened tensions in the Middle East and a continued rhetoric of “higher for longer interest rates” supported by strong US economic data. President Biden arrived in Israel but has not been able to achieve major diplomatic breakthroughs to calm markets.

In yesterday’s session, investors traded cautiously focusing their attention on the corporate earnings season and being attentive to the monetary policy path ahead and to the geopolitical risks. In this context, yields on sovereign bonds surged in advanced economies, with the 10-treasury getting closer to 5%.

In yesterday's session, a mixed release of the flash October PMIs pushed 10-year sovereign yields modestly down on both sides of the Atlantic while stock indices edged up backed on mixed Q3 earnings releases. Some companies beat analysts' profits expectations, some announced a higher profit guidance or other disappointed in both dimensions.

The week started off with a volatile session as markets await key economic data this week (PMIs for advanced economies and US 3Q GDP), 3Q euro area Bank Lending Survey, the ECB's rate decision, further 3Q earnings, and news from the Middle East.

In the last session of the week, investors traded with a risk-off mood amid fears of a escalating conflict in the Middle East. The VIX index, despite remaining at historically moderate levels, reached its highest level since March and stock indices declined across the globe.

In yesterday’s session, investors once more weighed the growing tensions in the Middle East and the future path of interest rates. Fed Chair Jerome Powell said the central bank would proceed carefully with rates, highlighting that the rise in yields in bond markets is helping to tighten financial conditions.

Friday´s session was clouded by the risk that geopolitical tensions in the Middle East could escalate further causing a sustained rise in oil prices. On the economic side, US University of Michigan Consumer Sentiment fell from 68 to 63 from last month and China exports fell, although by less than expected by the consensus.

Investors’ concerns over economic growth outlook ahead, and the decrease in the probability of an additional interest rate hike from the US Federal Reserve this year were the main drivers in yesterday’s session.  

Investors’ perception that  central banks will still need to increase interest rates in this hiking cycle was the main driver in yesterday’s session. The release of the last ECB meeting minutes and the somewhat higher-than-expected September CPI inflation data for the US fueled this expectation.

The Fed delivered a hawkish pause yesterday, leaving interest rates unchanged but acknowledging a strong US economy. The dot-plot projects a tighter policy through 2024 and 2025, consistent with rates higher for longer. US stock indices fell and US Treasury yields rose on the news, with the yield curve flattening, while the USD appreciated.

Investor sentiment improved amid diplomatic efforts to avoid the Israeli-Hamas conflict from spreading in the Middle East, with US Secretary of State Blinken arriving in Israel for talks and both President Biden and German chancellor Scholz planning a visit later this week.