Financial Markets Daily Report

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In the last session of the week, investors weighed better-than-expected economic data in the euro area with mixed signals from central banks about the pace of rate hikes in the coming meetings, including from ECB member Schnabel.

Financial markets extended gains during a session characterized by low trading volumes, due to the Thanksgiving holiday in the US. The key theme remained expectations for a slowdown in the pace of monetary policy tightening by major central banks, after a dovish reading of the accounts of the last Fed meeting.

Investors continued to trade with a positive mood ahead of the Thanksgiving holiday in the US (markets will remain closed today). Hopes that central banks could allow less tightening were reinforced by feeble sentiment data and the minutes of the last Fed meeting, where a “substantial majority” of officials backed reducing the pace of rate hikes.

Investors turned more positive during a risk-on session on Tuesday. The key themes remained the potential moderation of interest rate hikes by central banks, COVID outbreaks in China and volatility in energy markets.

Precaution continued to set the tone during the first session of the week, with investor sentiment negatively affected by the ongoing deterioration of COVID infections across China and the likely imposition of more restrictions.

Investors closed the week trading cautiously, still digesting the hawkish rhetoric by some key Fed officials (St Louis Fed James Bullard) and data showing a further decline in home sales in the US in October.

In yesterday's session, monetary policy took center stage again as US Federal Reserve comments pointed to a higher terminal interest rate than anticipated by financial markets. Investors priced in these comments and yields on sovereign bonds rose in the euro area and, especially, in the US.

Investors traded with a cautious mood in yesterday’s session amid mixed economic data in the US and a delicate geopolitical situation. Nevertheless, US and NATO comments are for now ruling out the possibility that the missiles hitting Poland had a Russian origin.

In yesterday’s session, financial markets' expectation of a much more tightened monetary policy stance eased, as producer price data in the US increased by less than expected in October (0.2% and 0.0% m/m the overall and core indices). Also, speeches from ECB and Fed members favored slowing down the pace of rate hikes.

In the first session of the week, monetary policy centered the stage, with important voices from the ECB and the Federal Reserve advocating for a slower pace of interest rate hikes in the coming months.

In the last session of the week, investors' sentiment kept the upbeat tone seen on Thursday following the decrease in the October US CPI inflation figures. Money markets continued to price a lower monetary policy tightening from the ECB and the Fed than the one implied before the CPI release.

A risk-on session was recorded across markets on Thursday after the softer-than-expected inflation data in the US and the uptick in new weekly jobless claims reinforced hopes for a slowdown in the pace of rate hikes by the Fed.