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Investor sentiment diverged slightly on both sides of the Atlantic at the start of the week. In the US, the ISM survey showed a manufacturing sector close to recovery while Fed's Bowman gave hawkish signals on future interest rates. This pushed Treasury yields higher while equities fared slightly better, with the Nasdaq up and the S&P500 flat.

In yesterday’s session, economic sentiment data releases were the focus of investors’ attention. In both Europe and the US, better-than-expected, but still weak economic data, pushed sovereign yields down on both sides of the Atlantic amid an upward trend in previous sessions.

In the first session of the week, investors traded with a risk-off mood amid the escalation of Israeli-Palestinian conflict. In the macroeconomic front there were no relevant data releases.

Investors’ concerns over economic growth outlook ahead, and the decrease in the probability of an additional interest rate hike from the US Federal Reserve this year were the main drivers in yesterday’s session.  

Investors’ perception that  central banks will still need to increase interest rates in this hiking cycle was the main driver in yesterday’s session. The release of the last ECB meeting minutes and the somewhat higher-than-expected September CPI inflation data for the US fueled this expectation.

Friday´s session was clouded by the risk that geopolitical tensions in the Middle East could escalate further causing a sustained rise in oil prices. On the economic side, US University of Michigan Consumer Sentiment fell from 68 to 63 from last month and China exports fell, although by less than expected by the consensus.

Investor sentiment improved amid diplomatic efforts to avoid the Israeli-Hamas conflict from spreading in the Middle East, with US Secretary of State Blinken arriving in Israel for talks and both President Biden and German chancellor Scholz planning a visit later this week.

Solid US economic data released yesterday showed a still resilient economy reinforcing the the case for the Federal Reserve to keep interest rates higher for longer. September US industrial production rose to the highest level in nearly five years to 103.6 and retail sales increased 0.7%, up from 0.6% beating expectations.

In yesterday’s session, investors traded with mixed sentiment as they navigate through heightened tensions in the Middle East and a continued rhetoric of “higher for longer interest rates” supported by strong US economic data. President Biden arrived in Israel but has not been able to achieve major diplomatic breakthroughs to calm markets.

In yesterday’s session, investors once more weighed the growing tensions in the Middle East and the future path of interest rates. Fed Chair Jerome Powell said the central bank would proceed carefully with rates, highlighting that the rise in yields in bond markets is helping to tighten financial conditions.

In the last session of the week, investors traded with a risk-off mood amid fears of a escalating conflict in the Middle East. The VIX index, despite remaining at historically moderate levels, reached its highest level since March and stock indices declined across the globe.

The week started off with a volatile session as markets await key economic data this week (PMIs for advanced economies and US 3Q GDP), 3Q euro area Bank Lending Survey, the ECB's rate decision, further 3Q earnings, and news from the Middle East.

In yesterday's session, a mixed release of the flash October PMIs pushed 10-year sovereign yields modestly down on both sides of the Atlantic while stock indices edged up backed on mixed Q3 earnings releases. Some companies beat analysts' profits expectations, some announced a higher profit guidance or other disappointed in both dimensions.

The ECB's caution regarding a pivot in its hiking cycle weighed on investors in yesterday's session. Lagarde's press conference appeared hawkish in contrast to Powell's and the Fed's dot plot on Wednesday, which cooled market expectations for rate cuts in 2024 in both sides of the Atlantic.

In yesterday’s session, investors traded cautiously amid weaker-than-expected economic data releases in the US. In particular, Q3 GDP was revised slightly downwards from 5.2% SAAR to 4.9% while the core PCE price index edged down in Q3 to 2.0% from 2.3%.

In yesterday’s session, investors focused their attention to macroeconomic data releases. In the UK, inflation decreased by more than expected in November, from 4.6% to 3.9% the headline index and from 5.7% to 5.1% the core, reinforcing the idea that the BoE might start cutting rates in the first half of 2024.

In yesterday's session investors traded with a somewhat risk-on mood as they downplayed the messages from central bank officers. From the US Federal Reserve, Raphael Bostic said that inflation will come down relatively slowly, which will not urge a fast change from the restrictive monetary policy stance.

In yesterday's session, investors traded without major economic references, beyond the Germany IFO which confirmed weakness in business sentiment, and amid continuing comments from central bank officials trying to push back against the expectation of the first interest rate hike (e.g.: ECB's Stournaras and Fed's Mester). 

In the last session of the week, investors focused their attention on the ECB and Fed officials’ speeches, which tried to push back against the expectation for early interest rate cuts.

Euro area and US sovereign bond yields continued to fall during Friday's session as investors continue to expect interest rate cuts by mid-2024. Speaking last Friday, Federal Reserve chair Jerome Powell remarked that policy is "well into restrictive territoy" further fueling the rally in bond markets.