Evolution of the international financial markets and evaluation of the main events and economic indicators of the previous day session. Available in English.
Investors continued to adjust their expectations for future interest rate cuts following strong PMIs, higher-than-expected wage growth in the euro area, and some hawkish remarks from central bank officials. Markets are now pricing in just two cuts from the ECB this year and one cut from the Fed, down from three and two, respectively, last week.
In yesterday's session, the release of May's flash PMIs for the main advanced economies and corporate earnings took center stage in financial markets. On the former, the manufacturing and services indices rose in the US, leaving the composite index at 54.4 (a two-year high).
In yesterday’s session, investors focused their attention to the release of the last FOMC meeting minutes, which reinforced previous communication that Fed members still expect inflation to return to 2% over the medium term, while acknowledging that it will take longer than previously anticipated.
In absence of key macroeconomic data releases, central bank communication continued to be the main driver for financial markets. Yesterday, divergent views on inflation and the interest rate path ahead on both sides of the Atlantic were made even more evident.
Investors started the week trading cautiously in a session without major economic events. Central bank officials’ comments, then, took center stage with different FOMC members insisting that the latest inflation readings have not given them enough confidence to start cutting rates at this stage.
Investors continued digesting this week’s data releases in the US, including the CPI report, retail sales, and new data showing industrial production stalled in April after growing 0.1% in March. In the euro area, remarks from ECB officials including De Guindos, Centeno and De Cos, all pointed to June for an interest rate cut but asserted caution thereafter.
Yesterday’s session was filled with macro data releases. US CPI cooled from 3.5% yoy in March to 3.4% in April (+0.3% m/m), as expected by consensus, and the core index dropped from 3.8% yoy to 3.6% (+0.3% m/m), suggesting inflation resumed its downward trend. US April retail sales were unchanged from the previous month vs +0.4% expected.
uIn yesterday's session, investors weighed a higher-than-expected US Producer's Price Index for April and comments from Fed chair Jerome Powell, who remarked it is unlikely that the Fed will need to raise interest rates any further, despite having lower confidence that the 2% inflation target will be achieved soon.
In yesterday’s session investors traded cautiously ahead of tomorrow’s release of US April inflation data, which will be key for the Federal Reserve’s policy decisions. In this context, sovereign bond yields were mostly unchanged on both sides of the Atlantic, while equities were flat in the US and modestly lower in the euro area.
Investors ended the week on a cautious note following a weaker-than-expected consumer confidence index in the US, combined with higher short-term inflation expectations at 3.5%, and hawkish remarks from certain Fed officials. Meanwhile, comments from ECB's Elderson once more pointed to a 25 bp cut in June.
In yesterday’s session, investors paid attention to economic data in the US pointing to a further cool down in the labor market and to the BoE monetary policy meeting, where interest rates were kept unchanged at 5.25%, as expected.
In another session without major macroeconomic references, monetary policy took center stage. The Riksbank decided to reduce its official interest rate by 25 bp to 3.75%, the first cut since 2016, and ECB and Fed officials commented on their respective economic and monetary policy outlooks.