Financial Markets Daily Report

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Hopes for a so-called “soft landing” continued to lift spirits across financial markets on Thursday, following stronger-than-expected economic data as well as solid Q4 earnings results by some large US tech firms.

Investors traded yesterday with a positive tone amid somewhat better-than-expected corporate earnings results in the US and expectations of a moderation in the pace of monetary policy tightening. In Germany, the Ifo expectations’ index rose in January, but remained at very low levels.

In yesterday's session, investors weighed mixed corporate earnings results with better-than-expected flash January PMIs. In particular, the composite indices for the euro area and the US edged up from 49.3 and 45.0 to 50.2 and 46.6, respectively. Both sectors, services and manufacturing, registered an improvement from the previous month.

Investors started the week trading with a risk-on mood, taking position ahead of corporate earnings and key economic data to be released this week. Today, the focus will be on the flash PMIs for January, which are expected to edge modestly up in the euro area and in the US, despite remaining below the 50-point expansionary threshold.

In the last session of the week, yields on sovereign bonds rose markedly, particularly so in the euro area, and stock indices advanced across the board. The surprise in the PPI m/m inflation in Germany (-0.4% vs consensus -1.2%) and the hawkish comments from ECB GC member Holzmann contributed to the increase in yields.

Investors continued to err on the side of caution on Thursday, still digesting weak economic data pointing to a global economic slowdown and a new round of hawkish signals from the ECB.

Financial markets closed with mixed results during a volatile session on Wednesday, as investors weighted out data in the US showing a weak year-end for retail sales (-1.1% m/m in December) and industrial production (-0.7%) with signs of further easing in inflationary pressures (headline PPI fell by 0.5% m/m in December).

Risk appetite continued to set the tone on Tuesday, as investors shrug off data showing GDP stalled in China in Q4, mixed results from some US banks during the Q4 earnings season and hawkish messages from some ECB officials.

Financial markets started the week trading with no clear direction, swinging between modest gains and losses across equity markets in Europe and Asia, during a session characterized by low volumes due to a national holiday in the US.

Risk appetite continued to set the tone in the last session of the week, as investors reassessed prospects for less aggressive monetary policy tightening, on the back of reduced inflationary pressures, and took on board mixed results at the start of the Q4 earnings season among large US banks.

In yesterday’s session, the US CPI data for December centered the stage and confirmed the downward trend kicked off last summer. In particular, the headline index fell by 0.1% m/m and the core measure rose by 0.3%. On year-on-year terms, inflation eased to 6.5% (headline) and 5.7% (core), both in line with consensus expectations.

In yesterday's session, investors continued to trade with a risk-on mood, taking position ahead of potential surprises in the crucial CPI inflation report in the US due to be released today. The headline index is expected to decline m/m, increasing the odds for a 25bp hike in the next Federal Reserve meeting, instead of a 50bp hike.