Financial Markets Daily Report

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In the first session of the week, investors traded with a risk-off mood amid the escalation of Israeli-Palestinian conflict. In the macroeconomic front there were no relevant data releases.

In the last session of the week, the awaited release of the September US employment report changed investors’ expectations of the path of interest ahead. Non-farm payrolls increased by a 336k, notably above expectations, and the two previous months were revised by 119k higher. The unemployment rate remained unchanged at 3.8%.

In yesterday’s session investors traded cautiously as they awaited today’s release of September US employment report, which should give further signs for the future path of interest rates. Weekly US unemployment claims, released yesterday, ticked up modestly as expected and set the stage for today’s data.

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.

Risk-off sentiment took over the market yesterday after the US JOLTS report showed an unexpected rise in job openings in August, which could support further rate hikes by the Fed, although comments from Fed officials on the day were mixed, with Mester leaning towards a hike at the upcoming meeting and Bostic opting to hold.

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.

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.

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%.

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.

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.

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.

Financial markets ended the week giving mixed signals from both sides of the Atlantic. In Europe, flash PMI data for September showed a slight improvement in business activity, albeit still signalling economic contraction amid a weak German manufacturing sector, pushing up government bond yields and dragging most equity indices lower.