In yesterday’s session, investors once more weighed the growing tensions in the Middle East and the future path of interest rates. Fed Chair Jerome Powell said the central bank would proceed carefully with rates, highlighting that the rise in yields in bond markets is helping to tighten financial conditions.
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Friday´s session was clouded by the risk that geopolitical tensions in the Middle East could escalate further causing a sustained rise in oil prices. On the economic side, US University of Michigan Consumer Sentiment fell from 68 to 63 from last month and China exports fell, although by less than expected by the consensus.
Investors’ perception that central banks will still need to increase interest rates in this hiking cycle was the main driver in yesterday’s session. The release of the last ECB meeting minutes and the somewhat higher-than-expected September CPI inflation data for the US fueled this expectation.
Financial markets diverged across the Atlantic on Tuesday. In the US, sentiment was supported by optimism around US‑Iran peace talks, despite US missile strikes in southern Iran. In the eurozone, by contrast, the rebound in European benchmark energy prices—Brent crude and TTF natural gas—after a few sessions of relief weighed on investor sentiment.
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, investor sentiment worsened as uncertainty over the fiscal stimulus in the US rose and the EU-UK trade negotiations seemed to be heading towards a no-deal brexit.
Stock indices were mixed as financial markets digested the downward revision of global growth forecasts from the OECD and the downbeat economic releases in the US (2018's trade deficit, the largest since 2008, and ADP employment report slightly below consensus).
Stocks declined across the board on Friday as downbeat activity figures in the U.S. (nonfarm payroll employment +20,000 in February after +311,000 in January) and China (export growth dropped from 9.1% yoy in January to -20.7% in February) added to the OECD and the ECB's downgraded macroeconomic projections earlier in the week.
The accommodative monetary policy stance confirmed in yesterday's Federal Reserve's meeting and the better-than-expected December flash PMIs in the euro area kept optimism among investors. In particular, the manufacturing indices were expected to fall but managed to increase, and the services indices rose but remained below 50.
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.
Investor's remained cautious yesterday as they await for more clues on the upcoming macroeconomic and political outlook. In the U.S., results from technological companies surprised to the upside, while the industrial sector suffered from concerns about economic growth.
Investors started the year trading with a risk-on mode, taking on board data showing receding inflationary pressures in Europe, a slowdown in economic growth in the US and a further decline in energy prices across the globe. As a result, investors revised down modestly their expectations for future policy interest rate hikes.
Volatility and risk aversion continued to set the tone during the last session of the week, as investors were still digesting the hawkish rhetoric during the last monetary policy meetings of 2022 at major central banks.
With U.S. markets closed for the Memorial Day holiday, European stocks advanced moderately at the start of the week as investors digested the results of the weekend's European Parliament election.
Financial markets' tone improved for the second day in a row on the back of previous Fed comments saying that it would support the economy in case the scenario worsens, mixed economic data releases and brighter investor expectations on trade tensions between Mexico and the U.S.
In the last session of the week, stock indices rose in the US and core euro area following positive corporate results and the better-than-expected GDP growth figures in the US.
In yesterday's session, investors' sentiment deteriorated amid the expectation of a tighter monetary policy from the Federal Reserve and the ECB and disappointing corporate results. Concerns about the Covid-19 situation in China added to the somber sentiment.
Precaution continued to set the tone during the first session of the week, with investor sentiment negatively affected by the ongoing deterioration of COVID infections across China and the likely imposition of more restrictions.
Economic sentiment data and new advances in a vaccine treatment for COVID-19 were the main drivers of a mixed session in financial markets. On the one hand, the University of Oxford and AstraZeneca Plc said that their vaccine prevented 70% of the participants from falling ill. This effectiveness rises to 90% with an alternative treatment.