Investors traded cautiously during yesterday's session ahead of the FOMC meeting today, in which the Fed is expected to lower interest rates by 25bp (see our take here). US Treasury yields edged down, euro area sovereign yields were flat, and stocks fell on both sides of the Atlantic. The euro rose against the dollar to its highest in 4 years, close to 1.187.
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Markets traded in risk-off mode during Friday's session, with heightened volatility, as investors reacted to the latest social media announcement by the US President regarding its trade agenda. Trump threatened to impose a 50% tariff on the EU and a 25% levy on Apple if the company refused to relocate its manufacturing to the US.
A quiet session on Wednesday as US markets were closed for the Juneteenth holiday. In the eurozone, government bond yields rose and peripheral spreads widened after the European Commission opened an excessive deficit procedure for France, Italy, Belgium and five other member states under the 2024 European Semester Spring Package.
Markets were mixed in yesterday's session. Global stock markets advanced and U.S. sovereign yields nudged down as the U.S. CPI report did not depress investor expectations about Fed cuts. In Europe, the euro strengthened on the back of a hawkish reading of the ECB's meeting, German sovereign yields nudged up but peripheral spreads ticked down.
The week ended with investors in a risk off mode in the financial markets. In the eurozone, PMI data for France and Germany came in below expectations and below last month's levels, while in the US the index rose slightly from May.
The week began with eurozone investors digesting the results of the French parliamentary elections, in which Le Pen's RN did slightly worse than polls had predicted. Eurozone peripheral spreads tightened, although government bond yields rose as Lagarde said in Sintra that the ECB was in no hurry to cut rates further.
Investors ended the week on a positive note, as risk appetite increased on the back of the ECB’s rate cut, another round of stimulus measures announced by the Chinese authorities, and strong Q3 US corporate earnings.
Investors ended the week focused on the US employment report for June, which signaled the labor market is cooling as job creation slowed and the unemployment rate ticked up from 4.0% to 4.1%. This boosted expectations for two rate cuts this year, which sent Treasury yields lower and stocks higher, with the Nasdaq and S&P 500 hitting new record highs.
The ECB cut interest rates by 25bp for the third time since June, and as expected by financial markets, lowered the deposit rate to 3.25%. The decision was based on increased confidence that inflation is close to target and a shift to a more negative short-term outlook for the euro area economy.
The week kicked off to a mixed start. US Treasury yields rose after Trump announced on the weekend the US will raise tariffs on steel and aluminium (25% to 50%) and accused China of breaching the trade truce agreement. Separately, the ISM and PMI surveys for May showed delivery times increasing, while prices paid by suppliers remained elevated.
Renewed fears about inflation and fiscal discipline prompted a broad sovereign bond sell-off. The Japanese 20-year bond yield reached levels not seen since 1999, the 30-year UK yield touched highs from 1998, and the yields on the 30-year US Treasury came close to 5%. Risk-off sentiment spread to global stock markets which pared losses during the session.
The Federal Reserve's decision to lower interest rates by 50 bp sent global stocks soaring during yesterday's session. Equities climed more than 2% in the euro area, and in the US, the S&P 500 reached a new all-time high, as stocks priced in the soft-landing scenario.
Investors traded cautiously amid trade tension escalations and heightened uncertainty, with all eyes on today's U.S. CPI report for June. The market's reaction to tariff threats was rather muted, with sovereign yields edging higher on both sides of the Atlantic, and equity markets posting slight gains in the U.S. and slight losses in the euro area.
Markets were mixed in yesterday's session as investors digested Trump's delay of the tariff deadline to August 1. The main U.S. stock indices were little changed, while European stocks rose across the board. The USD was stable against a basket of currencies and the EUR continued to fluctuate around $1.17.
Investors traded cautiously in yesterday's session and, in the euro area, the major stock indices declined and sovereign yields edged lower. In a panel of central banks in Sintra, Fed's Powell acknowledged that the Fed would have already cut rates this year absent Trump's tariffs, while the ECB's Lagarde stated that inflation is at target in the euro area.
Markets started the week in a mixed mood as investors eye trade negotiations and the central bank meetings in Sintra. Market confidence in Fed rate cuts drove U.S. sovereign yields down, while euro area sovereign yields were little changed. The euro strengthened against the dollar and edged towards $1.18 (a 5-year high).
Financial markets struggled to find a clear direction amid heightened geopolitical tensions in the Middle East. Oil prices had a volatile session, with the Brent reference touching $76/barrel in intraday trading, to close at around $74/barrel. Equity markets closed with slight losses in the euro area and flat in the US, while the volatility index remained elevated.
Inflation eased below 2% in Germany and Italy in September (1.6% and 0.7% yoy, respectively), as it did in Spain and France. ECB President Lagarde remarked recent data has strengthened the central bank's confidence in the return of inflation to target, sending the probability implied by futures markets of a 25bp cut in the October meeting to 90%.
Markets had an intense risk-off session following weaker-than-expected manufacturing data in the US, and as investors position themselves for the US jobs report on Friday, which could determine the Fed's next move. In particular, the ISM index for July came in at 47.2, slighlty higher than last month's, but still in contractionary territory.
Financial markets had a mixed start to the week as investors tried to reconcile seemingly contradictory signals. In the eurozone, government bond yields fell after September's PMI showed a weak manufacturing sector weighing heavily on the core economies. A sharp, unexpected deterioration in the French services PMI also pushed up the country's spread.