Evolution of the international financial markets and evaluation of the main events and economic indicators of the previous day session. Available in English.
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.
Economic activity data and central bank decisions centered the stage in yesterday’s session. On the one hand, the Bank of England kept interest rates unchanged and hinted that the next move could be a rate cut, as there have been “further encouraging signs that inflation is coming down”. The Swiss National Bank cut rates by 25bp to 1.50%.
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 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.
Markets kicked off the week with a tranquil session ahead of a week full of central bank meetings, starting with the Bank of Japan today, and continuing with the Fed and the BoE later on. In this context, sovereign bond yields slightly rose across the board, while equities advanced modestly in the US led by tech stocks, and were mixed in the euro area.
In the last session of the week, yields on sovereign bonds continued to increase, modestly, as investors’ expectations on official interest rates continued to be revised to the upside. In particular the probability of observing the US Federal Reserve cutting rates in June or earlier stands currently at 63% (96% earlier in the month).
Macro data releases in the US yesterday gave investors mixed signals about the state of the economy. Higher-than expected producer price index (1.6% yoy vs 1.2% expected) and lower-than-expected retail sales (0.0% vs 0.4% expected) warned about sticky inflation and an economic slowdown, but unemployment benefit requests surprised to downside.
In yesterday’ session, investors continued to digest this week’s US CPI report, which showed the “last mile” of bringing inflation back to target is proving to be the hardest. Markets were mixed, with sovereign bond yields advancing modestly on both sides of the Atlantic, while equities posted slight gains in the euro area and small losses in the US.
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, investors traded cautiously ahead of today’s US February CPI release, which is expected to show prices grew by 0.4% m/m, implying a 3.1% y/y change, down from 3.4% last month. The report will also give a clearer picture of price dynamics before the Fed's meeting next week.
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.
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.