Markets showed limited reaction to the release of US December inflation data, which confirmed headline and core inflation unchanged at 2.7% and 2.6% yoy, respectively. US Treasury yields ended the session broadly flat, equities edged lower, and the US dollar was little changed against most major peers. Futures markets continue to price in the first Fed rate cut in June.
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On Thursday, German Bund yields rebounded by +5bp, partially reversing the broad decline seen earlier this week, following a positive surprise in the country’s industrial orders data in November (+5.6% mom). Other euro area sovereign yields were broadly stable, leading to a further narrowing of peripheral spreads.
In yesterday's session, European government bond yields broadly fell after December inflation numbers for Germany and France came in lower than expected, lowering odds of future rate hikes from the ECB. Investors will be attentive to today's release of December CPI in the euro area, looking for more hints on the rate path in the short term.
Optimism about the economic recovery favored a rotation into cyclical equities as investors digested the U.S. Senate's approval of Biden's $1.9tn fiscal package. European stocks rose across the board while tech-related stocks sold off and weighed on the U.S.' Nasdaq and S&P 500 benchmarks.
US Treasury yields ended yesterday's session mostly flat after the large sell-off they suffered on Monday. The market-implied probability of a Fed rate cut next week continued to stand close to 100%. The Japanese 2Y yield topped 1% early this week, its highest value since 2008, on continued expectations of a rate hike in two weeks.
Friday's session was shorter in the US as markets closed at noon due to Thanksgiving's holidays. Treasury yields rose slightly and US stocks edged higher, with S&P 500 registering the largest gains in a 4-day stretch since May amid high expectations that the Fed will cut rates next week. The dollar continued to depreciate against its peers.
Investors traded in a positive mood as the OECD signaled a brighter economic outlook. According to its updated forecasts, the world economy is set to grow by 5.6% and 4.0% in 2021 and 2022. The OECD estimates that spillovers from the U.S. fiscal stimulus will add more than 1pp to global growth.
Stocks rose across the board as Biden's $1.9tn fiscal package won final approval in the U.S. Congress and CPI data calmed inflation worries. In particular, U.S. CPI inflation rose to 1.7% yoy in February but core inflation nudged down to 1.3% (see our take and why we expect inflation to be under the spotlight in the coming months here).
Markets opened on a positive note after strong Nvidia earnings results, with a clear risk-on tone in Europe as equities rose and sovereign yields edged higher. But sentiment reversed sharply in the US after the European close, leading to a broad pullback in equities, with an intraday swing of nearly 5% in the Nasdaq, as the VIX hit its highest since April.
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.
Investors continued to trade in a mixed mood in yesterday's session. Commodity prices declined across the board while the USD strengthened. Stocks were mixed, advancing in Asia and Europe but declining moderately in the U.S.
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.
Investors started the week with a cautious mood as they wait for the release of this week's Q1 corporate results and the ECB monetary policy meeting.
Global stocks rebounded and sovereign yields continued to decline as investors cemented their expectations for rate cuts ahead of the Fed's next week meeting. The USD weakened moderately across other major currencies and gold prices continued to surge.
During a volatile session, markets erased some of the early gains after comments by Fed VP Richard Clarida noting that the central bank could start discussing in upcoming meetings adjusting the pace of asset purchases (tapering). In addition, house prices in the U.S. continued to accelerate while consumer confidence stalled.
Financial markets recorded another day with positive results, following the release of solid economic data in the U.S.: new jobless weekly claims fell to a new pandemic-era low and core capital goods orders rose by 2.3% in April, in both cases above expectations. U.S. Treasury Secretary Yellen also reiterated that the rise in inflation should be transitory.
In the last session of the week, global stocks remained near record highs lifted by the ongoing economic recovery from the pandemic and injections of fiscal and monetary policy stimulus.
U.S. equity markets reached new highs, led by technology, as sovereign yields declined after producer prices fell more than expected in August (-0.1% m/m), driven by lower services prices. The data reinforced market expectations of a Fed rate cut next week. In Europe, major indices closed mixed, with the notable gains in the IBEX-35 and the defense sector.
In the first session of the week, investors extended the positive tone seen during last Friday. In the euro area, economic data releases came in better than expected (EZ Sentix Investor Confidence rose in June to 28.0 from 21.0 and Spain's industrial production rose by 1.2% mom in April).
Euro area investor sentiment recovered following the EU-US trade deal, sending stocks higher across the region. In the US, investors traded in a risk-off mood on news that, after two days of negotiations in Stockholm, Chinese and US officials failed to deliver a trade deal and agreed only to seek an extension of the 90-day tariff truce. Stocks fell, and Treasuries rallied.