Investors ended the week on an upbeat note. Euro area PMIs suggested activity expanded during October (the composite index rose from 51.2 to 52.2), leading to higher sovereign yields and gains in the main equity indices. Cooler-than-expected U.S. inflation reinforced expectations of a Fed interest rate cut and boosted stock markets. The EURUSD held close to 1.16.
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For the second consecutive day, markets traded without a clear direction. Government yields ended flat on both sides of the Atlantic while stocks mostly fell, with some exceptions in the euro area, amid reports that the Trump administration is considering to curb exports to China made with US software.
Without any significant drivers, markets traded without a clear direction during yesterday’s session, pausing the previous’ days strong risk-on sentiment. Treasury yields edged lower in the US ahead of the Fed’s meeting next week (expected to lower interest rates by 25bp). European government yields fell across the region, keeping peripheral risk premia constant.
Volatility declined but remained elevated, as investors continue to digest mixed information about the potential risk of the spread of the omicron variant and hawkish signals from central banks. Labour data in the US (job openings surged in October while hiring decreased) also suggested that shortages are persisting.
Investors traded in a risk-on mood as markets head into the holiday period. Yesterday, sentiment was supported by news that the UK and the EU are on the verge of unveiling a trade deal (an announcement is expected today).
Markets ended the week in a mixed mood (stocks declined, safe-haven currencies rose) as investors closed positions ahead of low trading in August. The publication of the Financial Markets Daily Report will stop for a few weeks, but we will be keeping an eye on markets and be back by the end of August. We wish our readers a great summer break.
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.
Tueday saw a mixed session across markets. Fed Chair Powell acknowledged the resilience of the US economy but noted the labor market remains subdued, with limited hiring and firing activity, prompting a decline in short-term Treasury yields. Separately, the NFIB survey showed business confidence softened in September and many owners planned price increases.
Central bank communication remained at the center stage yesterday, as Fed and ECB officials reiterated that monetary policy would need to be restrictive for a while. In the eurozone, GC member Klaas Knot, said the ECB should only decrease the pace of rate hikes once it sees underlying inflation abating, pointing to a 50bp hike in May.
Investor risk appetite soured and global risk assets fell after President Trump threatened a “massive” tariff hike on Chinese exports, citing “hostile” export controls over rare earths. Equity indices declined across the Atlantic, with the tech-focused Nasdaq among the worst performers. Trump’s threats were watered down over the weekend.
Tuesday's session was mixed, as investors weighed worries of further restrictions to stem the spread of the virus in Europe against prospects of additional fiscal stimulus in the United States.
A new variant of the coronavirus in the U.K. triggered a global sell-off yesterday. The new variant, which is said to be up to 70% more infectious, sent stocks lower across the world.
In the US, the latest revision of Q2 GDP growth confirmed the economy is expanding at a stronger pace driven by resilient personal consumption and solid private investment. Investors pared back expectations for future Fed rate cuts to four by the end of 2026. This shift pushed Treasury yields higher.
Investors started the week with fresh optimism as the EU and the UK are set to continue negotiating to reach a deal before the transition period ends by December 31st.
Investors continued to err on the side of caution during a volatile session marked by the release of US CPI inflation for January. The report showed headline CPI rose by 0.5% m/m (+0,1% in December), while the year-on-year rate eased only mildly (6.4% after 6.5% in December), above expectations (6.2% according to Bloomberg).
In yesterday's session, investors traded cautiously as they weighed concerns about the omicron variant with data confirming the tightness of the U.S. labor market (layoffs hit a 28-year low in November) and mounting inflation pressures (euro area producer prices rose by 21.9% y/y in October).
Global stock markets started the week with slight gains, after the Chinese President Xi Jinping sent a positive signal to the market saying he backs globalization and the opening up of China's market.
In yesterday’s session, investors traded cautiously, closing with mixed results in the US and in Europe. The lower-than-expected HICP inflation print in Germany (9.2% in January from 9.6%) pushed down yields on sovereign bonds in the euro area (despite the hawkish tone from some ECB officials) and allowed stock indices to increase.
Without relevant macro data to trade on, no advances in negotiations to reopen the US government, nor any new developments in France, markets traded cautiously during yesterday's session. Euro area sovereign yields ended mostly flat while US Treasury yields edged lower, and stocks retreated globally. The euro weakened to 1.16 against the dollar.
Yesterday's main news was the reopening of the US government after the largest shutdown in history. However, Treasury yields rose as markets priced a lower probability of a December rate cut amid lingering uncertainty over the inflation outlook and growing divisions among Fed officials.