Financial Markets Daily Report

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Risk aversion returned to the fore during a volatile session on Tuesday, as investors reassessed the risk of a global recession amid ongoing disruptions in gas supply in Europe and reports of new COVID cases in some regions in China.

Investors started the week with mixed results, taking on board hawkish commentaries by some ECB officials and news reporting that the US government may announce a decision to lift certain tariffs on Chinese imports.

Fears of an economic recession with persistent inflationary pressures continued to weight on investors’ sentiment on Friday, following somewhat feeble economic survey data in the US (the ISM manufacturing slowed down from 56.1 to 53.0 in June) and another increase in eurozone HICP inflation (from 8.1% y/y to 8.6% y/y in June).

In yesterday's session, investors traded with a risk-off mood as recessionary concerns spread across financial markets,  following the release of the decrease in US real personal spending (from a downward revised +0.3% to -0.4% in May).

Investors continued to trade with caution amid comments from central bank officials which reinforced their intention to tame elevated inflation. In particular, Fed President Powell said in a panel discussion with ECB and BoE presidents that the objective is to bring down inflation, even if this process could put economic growth at risk.

In yesterday's session, financial markets closed with mixed results as several drivers affected sentiment differently. While the easing of Chinese lockdowns measures boosted risk appetite, the worse-than-expected reading of US consumer confidence (98.7, down from 106.4) erased initial signs of recovery in risky assets.

In yesterday's session, investors traded cautiously as they continued to assess whether central banks will be able to tame inflationary pressures without causing a hard landing. Geopolitical news centered the stage too, after the G7 meeting in Germany and ahead of today's NATO summit in Madrid.

In the last session of the week, investors' sentiment improved amid optimistic comments by central banks' officials and a revision in US inflation expectations data by the University of Michigan.

Risk aversion returned to the fore during a volatile session on Wednesday, as concerns about the health of the global economy, high inflation and monetary policy tightening resurfaced amid hawkish comments by central bank officials.

Risk appetite extended across markets on Tuesday, as investors weighted cheaper valuations against fears of a sharp slowdown in the global economy and a more aggressive withdrawal of monetary policy stimuli by central banks.

Investors started the week trading cautiously optimistic, in a session characterized by low volumes due to a holiday in the US and no major macro data releases.

Markets ended the week with a relief rally, recovering only a fraction of the decline in previous sessions, after a week dominated by monetary policy decisions by major central banks and fears among investors of an economic recession.