Evolution of the international financial markets and evaluation of the main events and economic indicators of the previous day session. Available in English.
In yesterday’s session, investors traded cautiously amid weaker-than-expected economic data releases in the US. In particular, Q3 GDP was revised slightly downwards from 5.2% SAAR to 4.9% while the core PCE price index edged down in Q3 to 2.0% from 2.3%.
In yesterday’s session, investors focused their attention to macroeconomic data releases. In the UK, inflation decreased by more than expected in November, from 4.6% to 3.9% the headline index and from 5.7% to 5.1% the core, reinforcing the idea that the BoE might start cutting rates in the first half of 2024.
In yesterday's session investors traded with a somewhat risk-on mood as they downplayed the messages from central bank officers. From the US Federal Reserve, Raphael Bostic said that inflation will come down relatively slowly, which will not urge a fast change from the restrictive monetary policy stance.
In yesterday's session, investors traded without major economic references, beyond the Germany IFO which confirmed weakness in business sentiment, and amid continuing comments from central bank officials trying to push back against the expectation of the first interest rate hike (e.g.: ECB's Stournaras and Fed's Mester).
In the last session of the week, investors focused their attention on the ECB and Fed officials’ speeches, which tried to push back against the expectation for early interest rate cuts.
The ECB's caution regarding a pivot in its hiking cycle weighed on investors in yesterday's session. Lagarde's press conference appeared hawkish in contrast to Powell's and the Fed's dot plot on Wednesday, which cooled market expectations for rate cuts in 2024 in both sides of the Atlantic.
Yesterday’s FOMC meeting boosted investor sentiment as the Fed sent a strong signal that the hiking cycle is over and that its members expect at least two rate cuts in 2024 (according to the median of the Dot-plot projections). This caused government bond yields to fall across the board, especially US Treasuries.
US November CPI report came mostly in line with expectations: prices grew 0.1% MoM (vs. 0.0% expected) and 3.1% YoY (as expected) down from 3.2% in October, reinforcing the view the Fed will leave rates unchanged at its meeting today. The lack of surprises left markets rather muted, with treasury yields flat and stock indices slightly advancing.
Investors started the week on a subdued note as they await key central bank meetings and data releases this week. Sovereign bond yields were little changed ahead of today's US CPI report. Yesterday, the NY Fed's 1-year inflation expectations index for November extended its decline to 3.4% showing the impact of interest rate hikes.
Investors ended the week by revising their expectations for future interest rates upwards as Friday’s US employment report for November beat expectations for job creation and a lower unemployment rate. This caused Treasury yields to rise across the board, as it should force the Fed to remain hawkish and potentially delay any interest rate cuts.
Markets took a pause after last week’s rally which brought the main stock indices to post their best monthly advance in years, and sovereign bond yields their largest monthly cuts in two years. Investors have now turned cautious ahead of this week’s US employment data while still pricing in the likelihood of interest rate cuts as soon as March 2024.
Euro area and US sovereign bond yields continued to fall during Friday's session as investors continue to expect interest rate cuts by mid-2024. Speaking last Friday, Federal Reserve chair Jerome Powell remarked that policy is "well into restrictive territoy" further fueling the rally in bond markets.