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Markets kicked off the week in a rather calmed tone as investors await key economic data this week which will provide them further clues regarding future interest rate cuts. On the data front, NY Fed’s January Consumer Expectations Survey found that respondents expect 1-year inflation to remain at 3%, the lowest reading in three years.

In yesterday's session, mixed macroeconomic data releases were the main drivers in financial markets. On the one hand, Q4 GDP figures showed that Japan and the UK are in technical recession (with -0.1% and -0.3% q/q growth rates) and US retail sales and industrial production fell by 0.8% and -0.1% m/m, respectively.

In the last session of the week, higher-than-expected US PPI inflation data in January (0.3% m/m from -0.1% in the previous month) pushed back the expectations of interest rate cuts from the Federal Reserve and favored an increase in sovereign bond yields on both sides of the Atlantic.

In yesterday’s session investors traded cautiously as they await PMIs for advanced economies to be released on Thursday, the Fed’s and ECB’s minutes (out today and tomorrow, respectively) and key corporate earnings in the US.

The hawkish rhetoric from central bank officials was the main driver in yesterday's session, which saw sovereign yields on the rise in the euro area and in the US. In the ECB, Pierre Wunsch said that interest rates might remain at restrictive levels for longer than previously anticipated considering the labor market strength and increasing wages.

Financial markets started the week with a slight risk-averse tone as investors await inflation data, to be released later this week, that will be key in determining interest rates’ future path. Sovereign bond yields rose across the board, while equity indices edged lower in the US and the euro area.

Yesterday’s session in financial markets was a quiet one without any major macroeconomic data releases and with the Q4 2023 corporate earnings season nearing its end. All eyes remain attentive to today’s release of January’s US PCE deflator, the Fed’s favored inflation gauge, and some euro area countries’ CPI.

US January PCE deflator came in line with expectations (2.4% yoy down from 2.6% the previous month), and euro area countries’ CPI did not surprise either (Germany: 2.5% yoy, France: 2.9% yoy, Spain: 2.8% yoy), boosting markets’ expectations of a first interest rate cut starting in June and July.

In the last session of the week, investors traded with a moderately optimistic tone amid economic data releases that offered mixed signals on the monetary policy path ahead. On the one hand, the US ISM manufacturing index fell from 49.1 to 47.8 (49.5 expected), with employment and new orders subcomponents decreasing.

In yesterday’s session, investors traded cautiously ahead of today’s ECB monetary policy meeting, where we expect official interest rates to remain unchanged (depo and refi at 4.00 and 4.50%, respectively) and a continuation of the data dependency approach.

Central bank communication preparing the ground to start easing the monetary policy stance soon was the main driver in yesterday’s session. In the euro area, the ECB kept interest rates unchanged and reinforced the data dependency approach, assuring that there is still some more progress to be done in domestic inflation.

In the last session of the week investors digested the US February jobs report, which gave mixed signs about the conditions of the labor market. In particular, the unemployment rate rose from 3.7% to 3.9%, while 275k new jobs were created, as opposed to the 200k expected. Treasury yields ended mostly flat and US equities fell following a strong rally.

Yesterday’s session was driven by the US February CPI report, which showed inflation last month was 3.2% yoy, slightly higher than January’s reading at 3.1%. Despite the slight acceleration, markets still expect the Fed to begin cutting rates this year, betting on a total of 4 cuts, with the first one being on June (with 77% probability).

In yesterday’s session monetary policy continued to take center stage in financial markets. Investors positioned themselves ahead of today’s US Federal Reserve meeting (where no change in interest rates is expected and the focus will be placed on the dot plot) and weighed comments from ECB officials.

The future path of central bank official interest rates continued to be the main driver in financial markets, as investors reacted to the US Federal reserve meeting and to several ECB members’ speeches.

In yesterday’s session investors continued to assess the probability that the Fed will deliver 3-4 rate cuts this year given the strength of recent macroeconomic data. In particular, the February PCE deflator grew 2.5% y/y, up from 2.4% last month, and manufacturing activity rebounded sharply in March as the PMI increased to 50.3 from 47.8.

In yesterday's session, stronger-than-expected macroeconomic data revived fears that the Fed might delay its first interest rate cut. In particular, the US JOLTS job report showed job openings rising by 8,000 in February and factory orders increasing by 1.4% m/m last month after falling 3.8% in January. 

In yesterday's session, new data supported investors' expectations that interest rate cuts could begin this summer, which sent euro area and US sovereign bond yields down. Specifically, weekly unemployment benefit claims rose in the US, and the minutes from the ECB's March meeting confirmed officials are confident inflation is moving in the right direction.

In yesterday’s session investors traded with a cautious mood as they await key US CPI data to be released this afternoon. Bloomberg consensus expects the headline and core indices to increase by 0.3% m/m, leaving the y/y rate at 3.4% and 3.7%, respectively.

Concerns about a hotter-than-expected inflation in the US centered the stage in yesterday’s session. In March, headline CPI rose by 3.5% y/y (3.2% in the previous month) and the core index rose by 3.8%, the same rate as in February.