Investors continued to trade in a low volatility environment as comments from policy makers reiterated their intention to support economic growth. In particular, Janet Yellen, US Treasury Secretary, urged the main economies to adopt an expansionary fiscal stance to secure a robust recovery.
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Markets started the week in a cautious mood as investors pondered over pandemic dynamics and the economic outlook. Stock markets declined moderately across most advanced and emerging economies while commodities were mixed and FX markets were little changed.
Global stock markets advanced across the board in yesterday's session. U.S. stocks reached new record highs on the back of robust retail sales data (+9.8% mom in March), but gains were more modest elsewhere.
Investors closed the week with an optimistic tone. Positive corporate earnings releases and Q1 activity data in China (GDP rose by 0.6% qoq and 18.3% yoy, due to base effects) contributed to the improvement in sentiment.
Investors traded in a more cautious way in yesterday's session. U.S. and euro area sovereign yields nudged up on the back of a surge in U.S. consumer confidence (the Conference Board's index rose to 121.7 points in April, its highest level since February 2020), while global stock markets were mixed.
Markets ended yesterday's session with no major movements. Risk assets gained, with commodity prices and most stock markets advancing moderately, but U.S. equities nudged down as investors eyed Biden's presentation of the $1.8trn American Families Plan – to be financed with higher taxes on the wealthy.
Volatility rose and stocks sold off as investors focused on the outlook for supply shortages and inflation. Stock market losses were widespread across sectors and countries while commodity prices advanced, the USD weakened, and U.S. sovereign yields nudged up.
Yesterday, volatility rose amid investor inflation worries. U.S. CPI inflation jumped in April to +4.2% yoy (headline index, +1.6pp) and 3.0% (core index, +1.4pp). Fed Vice Chair Richard Clarida reiterated the central bank's view that the inflation rebound is largely transitory as it is mostly driven by base effects and short-term supply bottlenecks.
Rising COVID-19 cases in some regions and inflation concerns, particularly in the US, were yesterday's main drivers in financial markets. Fed Governor Richard Clarida, though, eased fears of an early monetary policy tightening as he said that April's disappointing employment report showed that further substantial progress has not been made yet.
The Fed held its benchmark short-term interest rate and said it will continue to buy $80 billion in Treasury securities and $40 billion in mortgage-backed securities each month. Policymakers now see the first rate increase coming in 2023 instead of 2024.
Investors are now debating when the Fed is likely to start trimming its monthly bond purchases, while the Bank of Japan announced it will unveil a new tool to support efforts to address climate change.
In the last session of the week, positive economic data releases helped to improve investors' sentiment. June's consumer confidence in Germany rose to its highest level since August 2020 while in Italy it reached a record not seen since November 2018.
In yesterday's session, investors' sentiment worsened as COVID-19 infections increased in some parts of Asia and Europe, despite the vaccination campaign, and some countries imposed new limits to travel, especially from the UK.
In yesterday's session, investors traded with an optimistic mood following positive economic sentiment data releases for June in the euro area (EC Economic confidence rose from 114.5 to 117.9) and in the US (Conference Board consumer confidence at 127.3 from 120.0).
The S&P 500 Index closed at another record high as investors looked to a highly anticipated second-quarter earnings season, which will start today with Goldman Sachs, JPMorgan Chase & Co. and PepsiCo Inc. European equities hit a record high with investors rotating out of cyclical sectors and into more defensive.
Jerome Powell maintained his view that strong inflation will be temporary and said that the US economy was still far from levels the central bank wanted to see before tapering its monetary support.
Investors ended the week on a positive mood, supported by upbeat corporate earnings and favourable economic data. Markit's composite PMIs showed that July economic activity remained solid in the U.S. (59.7 points) and accelerated in Europe (EA: 60.6 points, a 21-year high; Germany: 62.5; France: 56.8).
Investors turned more cautious as the rout in Chinese equities dragged global stock markets in yesterday's session. Volatility jumped and stocks declined across advanced and emerging economies, with U.S. tech equities posting their biggest drop in more than two months.
Investors traded in a positive mood in yesterday's session. Favoured by risk appetite, stocks rose across advanced and emerging economies, commodity prices advanced in a broad-based manner and most currencies strengthened against the USD.
In August's low trading environment, markets searched for direction as investors continued to weigh the spread of the Delta variant against positive economic indicators and some hawkish-sounding remarks from Fed officials.