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, US debt ceiling negotiations continued to center the stage in financial markets as President Joe Biden and Republican speaker of the House Kevin McCarthy keep pushing for a deal to avoid a default on sovereign bonds. Biden specified that negotiations are on the fiscal budget, not on whether the US will pay or not its debt.
In yesterday’s session, investors continued to trade with caution amid intensifying political negotiations in the US to raise the debt ceiling and mixed economic data releases. In Europe, the May’s ZEW survey fell in the euro area and Germany, showing that investors’ sentiment remains gloomy.
In the first session of the week, investors traded with a cautious mood amid hawkish rhetoric from regional Federal Reserve presidents and an upbeat revision of the euro area forecasts done by the European Commission.
In the last session of the week, investors’ expectations on additional interest rate hikes by the US Federal Reserve were seen as more probable. That, together with debt ceiling concerns and an increase of inflation expectations seen in the University of Michigan survey, pushed US Treasury yields higher.
Another session with mixed results across financial markets. The key themes were signs that inflationary pressures are abating coupled with data suggesting an economic slowdown. In the UK, the BoE raised policy rates by 25 pb to 4.5%, in line with expectations, while signalling that additional rate hikes are likely.
Financial markets closed with mixed results on Wednesday. On one side, inflation data in the US suggested upside pressures in core prices are moderating while, on the other, ECB officials reiterated the need for further policy tightening. Today, the Bank of England unveils its monetary policy decisions.
Risk aversion returned to the fore during a volatile session on Tuesday, with weak trade data in China resurging fears of a global economic slowdown and as there were no clear progress during the first talks between Democrats and Republicans to try to resolve the US debt ceiling standoff. Today the focus turns to the US CPI inflation data for April.
Investors started the week trading with a more cautious approach, with sentiment negatively impacted by weak industrial data in Germany (–3.4% m/m in March, well below expectations) and signs of tightening credit conditions in the US, according to the Fed’s Senior Loan Officer Opinion Survey.
Investors closed the week trading with more appetite for risk, taking on board another upside surprise in labour market data in the US and easing financial pressure in the country’s regional banks.
In yesterday’s session, the focus was still on monetary policy decisions, as the ECB decided to raise the official interest rates by 25 bp (depo and refi rate at 3.25% and 3.75%, respectively). Despite lowering the pace of rate increases, Lagarde clearly signaled that the ECB cannot pause rate hikes yet as inflation is still too much elevated.
Yesterday’s Federal Reserve meeting resulted as a nonevent for financial markets as the 25bp rate increase to the 5.00%-5.25% target range was 100% priced in. Also, the removal of an explicit reference in the press release of further interest rate increases in the coming meetings was consistent with the expectation of a pause in the hiking cycle.