Evolution of the international financial markets and evaluation of the main events and economic indicators of the previous day session. Available in English.
As it has happened 4 times in the past, near the ending of a US government shutdown, equity markets rallied in Europe. In the US, however, main indices were mixed, with the Nasdaq registering losses as investors remained cautious about too-high valuations of tech companies. Last night, Trump signed into law the spending bill, allowing the US government to reopen.
In yesterday’s session, euro area sovereign yields edged lower with little news to trade on, while US treasuries did not trade as bond markets were closed due to Veterans Day holiday. The dollar weakened as investors continued to digest the generalized cautious tone of Fed officials on a rate cut on December, while the Japanese yen hit a nine month low.
Risk appetite surged on Monday, buoyed by expectations that the US government shutdown could end this week after several Democrats broke ranks to support a funding bill. Equity markets rallied on both sides of the Atlantic and tech stocks led the gains, rebounding rom Friday’s losses.
Friday’s session registered losses in nearly all major stock markets as investors reassessed elevated valuations in the technology sector. On the macro side, the University of Michigan Consumer Sentiment Index fell to a three-and-a-half year low, as worries about the economic consequences of the longest government shutdown ever increased.
Risk appetite deteriorated on Thursday. Sovereign yields fell in the US after a private report (the Challenger index) showed the US economy shed more jobs than expected in October, reportedly due to AI-driven layoffs. Legal uncertainty around Trump tariffs added pressure, as Supreme Court justices questioned their validity during an ongoing hearing. The move came despite Fed officials speaking on the day pushed back against rate cuts, citing inflation risks and the lack of official data.
Markets traded on an upbeat tone on Wednesday. Sovereign yields rose on both sides of the Atlantic on positive macro news. US Treasuries rose as the ISM index showed services sector activity increased in October to 52.4, an eight-month high. The ADP survey showed job creation remained subdued in October, but surprised positively too (42k vs 30k expected).
The week started on a risk-off tone. Equities fell across the board, particularly in the US, as several Wall Street CEOs and major banks warned of potential drawdowns and concerns over overstretched valuations. European and Asian indices also declined, albeit more modestly, with Spain’s Ibex closing flat.
Investors started the week in a mixed mood. US Treasuries rose modestly amid growing divisions within the FOMC, as Miran reiterated the need for aggressive rate cuts, citing what he described as tight financial conditions, while Goolsbee warned against easing prematurely given persistent inflation.
Markets ended the week mixed. Sovereign yields were broadly stable on both sides of the Atlantic, with curves steepening slightly. In the US, short-term yields declined despite hawkish Fed commentary opposing further rate cuts. In the eurozone, October CPI came broadly in line with expectations (although core inflation surprised slightly to the upside). Very long-term yields rose following the French parliament’s rejection of a wealth tax proposal, which also widened the French spread.
As expected, the ECB kept interest rates unchanged (depo at 2%) and reinforced its meeting-by-meeting data-dependent strategy. Euro area sovereign yields edged higher, and equities had a mixed session across the region. On the macro front, euro area GDP grew 0.2% qoq in Q3 (1.3% yoy), up from 0.1% qoq in Q2.
The Federal Reserve lowered interest rates by 25 bps to 3.75%–4.00%. Yet Chair Powell struck a hawkish tone, pushing back against market expectations of further cuts. U.S. Treasury yields rose +10bp along the curve, and the dollar strengthened, with the EUR/USD cross near 1.16. The market-implied probability of a December cut fell from 92% to 65%.
Markets had a relatively calm session ahead of the Federal Reserve meeting today, where it is widely expected to lower interest rates by 25bp. Sovereign yields were mostly flat on both sides of the Atlantic, while the EURUSD cross held steady around 1.16. Equities advanced in the US on the back of a strong earnings season and were mixed in the euro area.