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Investors kicked off the week with a somewhat quiet session as they await key inflation data later this week: June CPI for France, Spain and Italy; and the US PCE deflator, the Fed's preferred inflation measure.

Investors traded cautiously on Wednesday, digesting the December inflation print in the US, which showed headline inflation rising to 7.0%, highest since June 1982, and core inflation increasing by 0.6 pp to 5.5% yoy. Even if in line with consensus expectations, these figures add pressure to the Fed to start hiking interest rates as soon as in March.

In the last session of the week, investors' sentiment improved as the odds for a 100bp hike in the next US Federal Reserve meeting decreased.

Stock markets rebounded at the start of the week, as investors digested a new batch of mixed economic indicators and took advantage of attractive valuations, following the sharp decline in stock indices in recent weeks. Sovereign bond yields ticked down in the US and continued to edge higher across Europe.

Financial markets ended the week in a risk-off mode despite Friday's inflation data showing that disinflation is progressing on both sides of the Atlantic: US core PCE came in at 2.6% YoY, as expected; and in the eurozone the HCPI prints for Spain, France and Italy were also broadly in line with expectations at 3.5% YoY, 2.5% YoY, and 0.9% YoY, respectively.

During yesterday's session, investors continued to assess the results of the French elections last weekend which left the country with a fragmented National Assembly. Financial markets seemed to value the situation negatively and adopted a risk-averse tone, sending euro area sovereign bond yields higher and equities sharply lower, particularly in France.

Yesterday’s session centered around the June inflation report from the US: inflation cooled to 3.0% in June (from 3.3% in May) and core inflation fell to 3.3% from 3.4% last month. On a monthly basis, prices fell –0.1%, the first negative rate in four years. Markets are discounting two interest rate cut from the Fed in 2024, and a 40% probability of a third cut.

Financial markets started the week with all eyes on the ECB’s Governing Council meeting on Thursday.  The ECB is expected to leave interest rates unchanged and stick to its "data dependency" approach. European sovereign bond yields fell and peripheral spreads tightened yesterday ahead of the meeting and today's Q2 Bank Lending Survey.

Markets on both sides of the Atlantic saw mixed results yesterday. In the eurozone, where all eyes are on tomorrow’s ECB meeting, sovereign bond yields fell while peripheral spreads remained flat after the ZEW survey showed German business sentiment at its lowest in four months in July and despite the Q2 BLS showing an increase in credit demand.

Precaution and volatility continued to set the tone across financial markets on Thursday. Eurozone HICP inflation surprised on the upside (headline: 8.5% y/y in February after 8.6%; core: 5.6% after 5.3%) while, in the US, data showed unit labour cost accelerated in Q4 and new weekly jobless claims fell further last week.

Investors’ attention during Friday’s session focused on the worldwide cyber outage that affected banks, airlines, and telecommunications companies. The software glitch unnerved investors and dragged down overall sentiment, affecting mostly equity markets which ended the session lower across the globe.

Markets had a muted reaction to President Biden’s decision to drop out of the presidential race and endorse Vice President Harris as the Democratic candidate. Sovereign bond yields were mostly unchanged on both sides of the Atlantic and the US dollar was flat against its main counterparts.

Economic data releases on Friday boosted investors' sentiment and allowed sovereign yields to edge down and equities to advance. Price pressures continue to moderate but remain elevated, according to the ISM prices paid index in the US (which fell from 67.8 to 65.6) and the PPI in the euro area (which declined from 24.5% to 15.0% y/y).

Investors traded cautiously ahead of today's release of the US jobs report. Other labor market data released yesterday, like the ADP report, showed non-farm private employment cooled in August, while weekly jobless claims fell, pointing to weakening demand in the labor market, although layoffs remain low.

Risk aversion continued to set the tone across financial markets on Tuesday as investors took position ahead of the Federal Reserve’s policy meeting today, with money markets pricing another 75 bp hike in the policy rate.

Investors' risk appetite waned yesterday amid renewed tensions in the war in Ukraine. Government bond yields rose in the Eurozone, where data released yesterday showed that negotiated wage growth accelerated to 5.4% in Q3 from 4.6% in Q2, which could cause the ECB to reconsider its dovishness if this feeds through to inflation in the coming months.

Markets were mixed as investors continued to fully digest the US presidential election results and monetary policy decisions from various central banks. In the euro area, equities fell on fears of the negative implications of a potential trade conflict, and were further pushed lower by falling sovereign bond yields which dragged down financial sector stocks.

Investors continued to trade with caution at the start of the week, still digesting the hawkish rhetoric at Jackson Hole conference last weekend and taking on board mixed signals from ECB officials, after chief economist Philip Lane cautioned against outsized interest rate hikes, calling instead for a "steady pace" until the end of its hiking cycle.

Investors traded with caution in yesterday’s session, amid mixed economic data releases and hawkish central banks’ communication. In particular, the minutes of the last ECB meeting showed how Governing Council members agreed to further tighten monetary policy if the inflation outlook in March’s projections is confirmed.

Risk-off sentiment continued to dominate financial markets as tensions mounted in the Middle East. Oil prices rose 5%, with the Brent reference closing around $77/barrel, and the dollar strengthened.