The week ended with markets trading without a clear direction as investors continued to monitor central bank officials' speeches to adjust their expectations of the timing of the first interest rate cuts, and as they awaited key economic data to be released this week.
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In the last session of the week, renewed concern over the coronavirus overshadowed positive economic data releases and markets retreated, reversing the gains recorded earlier in the week.
Markets saw high commodity prices and elevated sovereign yields throughout August, driven by the ongoing conflict in the Middle East, pressure on inflation expectations, and hawkish central bank rhetoric. Yet stocks trended higher on the back of a solid earnings season, while the USD weakened against the main currencies.
Financial markets ended the day with mixed results, as investors digested a decision by the ECB to scale down its asset purchases and, separately, hawkish comments by some Fed officials about the likely start of tapering this year. These fears outweighed positive labour data in the US (new jobless claims fell to 310k last week, a pandemic-era low).
During Friday's session, sentiment moderated following the recent risk-on momentum, as investors headed into the weekend focused on developments in the Middle East and the prospect of US–Iran talks. Brent crude traded around USD 95/barrel, while TTF gas declined by around 5% to €43/MWh.
Global financial markets were mixed in the last session of the week as investors continue to navigate through interest rate cut expectations and new economic data. US University of Michigan consumer sentiment index improved to 78.8, the highest reading since July 2021, boosting the stock market and bringing the S&P 500 to a new record high.
In yesterday’s session, investors took a mildly positive view of December’s US CPI report, which confirmed the disinflationary momentum in the US economy, even though the headline figure was higher than expected. Government bond yields fell on the news and the market's discounted probability of a Fed rate cut in March rose.
Investors continued to trade with caution in anticipation of further monetary tightening by the Fed, despite ISM service sector survey in August was consistent with very solid growth in Q3. In the euro zone, the surveys anticipate the ECB will hike interest rates by, at least, 50 bp on Thursday.
Financial markets extended their slide as the World Health Organization declared the coronavirus outbreak a pandemic, while political assurances to cushion its impact failed to raise investors' sentiment (Angela Merkel pledged to do "whatever is necessary" to bolster the economy while the Trump administration promised a "major" stimulus).
In the last session of the week, investors focused their attention on the ECB and Fed officials’ speeches, which tried to push back against the expectation for early interest rate cuts.
Yesterday’s FOMC meeting boosted investor sentiment as the Fed sent a strong signal that the hiking cycle is over and that its members expect at least two rate cuts in 2024 (according to the median of the Dot-plot projections). This caused government bond yields to fall across the board, especially US Treasuries.
European sovereign yields edged lower in yesterday's trading session following a speech by ECB chief Christine Lagarde in which she signalled further monetary easing. In her speech, Lagarde emphasised the importance of the duration, and not only the size, of monetary accomodation, and identified PEPP and TLTROs as the main crisis tools.
On Monday, volatility continued to dominate financial markets. While the session started with losses in stock indices and sharp declines in sovereign yields, sentiment improved throughout the day following the communication by some ECB officials. Equities closed higher and yields on sovereign bonds rose in the US and were mixed in the euro area.
European stocks edged down on Friday, while U.S. stocks notched gains despite posting a slight loss on the week as investors faced the reality of a second coronavirus wave in Europe and the uncertainty around further stimulus in the U.S.
In yesterday’s session, investors traded cautiously as they awaited key economic data later this week (US CPI inflation) and the ECB monetary policy decision on Thursday. The main economic event yesterday was the downward revision of the European Commission’s summer GDP forecasts.
In yesterday's session, investors traded with a positive tone as the Federal Reserve kept its monetary policy unchanged and vote counting continued in the US. The Democrat candidate, Joe Biden, has taken the lead and potentially winning one more state would be sufficient for him to become the US President.
In yesterday's session, investors’ sentiment worsened in the euro area, amid inflationary concerns, while in the U.S. investors focused their attention on a potential breakthrough in negotiations between Democrats and Republicans to extend the debt ceiling and on the better than expected ADP employment report.
Investors ended the week trading with a pessimistic tone amid concerns on the economic outlook and tightening monetary policy. On a positive note, the US consumers' inflation expectations survey (University of Michigan) showed the lowest rate since last September, easing concerns that the Fed could hike rates this week by 100bp.
Investors started the week trading with more appetite for risk, as concerns about the banking sector receded following the announcement that SVB is to be acquired by another institution (First Citizens Bank & Trust) and news reporting additional support from the US authorities for regional banks.
In the first session of the week, investors' sentiment improved as sovereign interest rates declined in both sides of the Atlantic and amid better-than-expected corporate earnings releases in the US. Equity indices rose substantially across the board.