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Central bank officials continued to push against the expectation of as many as six interest rates cuts in 2024. Yesterday, was Fed’s Christopher Waller turn, who suggested moving not as quickly as in previous easing cycles.

In the last session of the week, investors focused their attention on the disinflationary pressures in the US, after December PPI unexpectedly declined by 0.1% m/m (-0.1% in the previous month). In this context, yields on sovereign bonds declined on both sides of the Atlantic, particularly so in the short-end of the curve. 

In yesterday’s session, government bond yields fell slightly on both sides of the Atlantic. In the eurozone, German export data for November, which surprised to the upside on the back of strong EU demand, contributed to the move. In the US, the NY Fed’s metric of consumer’s one-year inflation expectations fell to 3.01%, the lowest level in almost three years.

Investors are starting the year cautiously as risk appetite seems to have eased over the holidays. As central bank officials tried to push market expectations of imminent rate cuts, although these expectations remain anchored in March for the Fed and April for the ECB, government bond yields rose across the board, particularly in the euro area.

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.

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.

Yesterday’s FOMC meeting boosted investor sentiment as the Fed sent a strong signal that the hiking cycle is over and that its members expect at least two rate cuts in 2024 (according to the median of the Dot-plot projections). This caused government bond yields to fall across the board, especially US Treasuries.

Markets took a pause after last week’s rally which brought the main stock indices to post their best monthly advance in years, and sovereign bond yields their largest monthly cuts in two years. Investors have now turned cautious ahead of this week’s US employment data while still pricing in the likelihood of interest rate cuts as soon as March 2024.

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.

Investors took a breather from the recent buying spree in government bonds during Thursday’s session, pushing yields higher on both sides of the Atlantic. Despite data releases yesterday showing inflation cooling more than expected in the Eurozone and the US, investors were cautious ahead of comments from some central bankers.

Government bond yields extended their losses across the board on Wednesday as investors continued to focus on future interest rate cuts by major central banks. These expectations were boosted by upwardly revised Q3 US GDP growth figures and better-than-expected November inflation figures in Germany and Spain.

In yesterday’s session, investors traded cautiously amid mixed comments from central bank officials regarding interest rates’ paths ahead. In the euro area, ECB Chief economist Phillip Lane said that not enough progress has been accomplished in bringing inflation back to 2% and some other members did not rule out an additional rate hike.

In yesterday’s session markets were mixed across the globe in a day without major economic news. Sovereign bond yields rose on both sides of the Atlantic after days of declines, with euro periphery countries’ yields posting the largest increases and risk premia widening.

The possible end of the central banks’ hiking cycle continued to weigh on financial markets’ sentiment yesterday. A list of FOMC members said yesterday that the US economy remains strong but expressed a generalized preference for remaining patient amid rising uncertainty in the coming months.

In Friday’s session, markets traded again with strong risk appetite as investors continued to price in the end of the central banks’ tightening cycle. US employment data showed signs of a cooling labor market, further fueling investors’ expectations of no further rate hikes. Markets are now pricing in a rate cut in June by the Fed and in April by the ECB.