Financial Markets Daily Report

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Financial markets ended the week with subdued trading volumes, as the US trading session was shortened for the Thanksgiving holiday, which reduced participants and hence liquidity. 

In yesterday’s session, which was closed in the US due to Thanksgiving holiday, investors traded cautiously amid signs of weak economic growth in the euro area in Q4. Although the Composite euro area flash PMI rose modestly from 46.5 points to 47.1, it remained in contractionary territory.

Investors remained trading cautiously yesterday, as they still expect no further tightening of monetary policy and as economic data came in slightly better than expected. In the eurozone, the consumer sentiment indicator rose slightly from -17.8 to -16.9 in November, although it remains at quite a low level. 

Investors continued to trade cautiously yesterday amid messages from central banks signaling the end of the interest rates hiking cycle. Nevertheless, Christine Lagarde said that more evidence is needed to be sure that inflation returns sustainably to the 2% target.

The week started in a subdued mood in financial markets, with investors still assessing the implications of the patient approach of central banks on monetary policy. Yesterday, ECB member de Cos followed previous comments from Wunsch and Holzmann and said that it is premature to talk about interest rate cuts.

In the last session of the week, investors continued to digest the patient approach for the monetary policy ahead expressed by ECB and US Federal Reserve officials. For example, San Francisco Fed President Mary C. Daly said that the Fed could take its time to do things right, signaling that no further rate hikes are in sight for the moment.

In yesterday's session sovereign bonds took center stage once again. Yields extended their declines both in the euro area and in the US, where higher-than-expected weekly jobless claims pointed to a cooling labor market and gave investors further reasons to believe the Federal Reserve is done hiking rates.

Yesterday markets took a pause following Tuesday’s strong rally. Investors continue to price in the end of the interest rate hiking cycle while still digesting new economic data. US October retail sales slowed in October by less than expected (-0.1% m/m vs. -0.3%), suggesting some resiliency in consumption and reinforcing the idea of a soft-landing.

Financial markets rallied globally following lower-than-expected US consumer prices. October CPI was unchanged m/m from September (vs. 0.1% expected) and rose 3.2% y/y (vs. 3.3% expected), down from September’s 3.7%. The market now expects the Fed to cut rates in May, ahead of June as was priced before the release of inflation data.

Financial markets started the week on a cautious note as investors await for US October CPI data released today. The consensus expects price growth to have slowed to 0.1% m/m from September's 0.4%, implying a 3.3% y/y change in October, down from 3.7% last month.

During Friday’s session investors’ sentiment was mixed as markets continued to digest Powell’s speech and hawkish remarks from Lagarde. The University of Michigan U.S. Consumer Sentiment Index dropped again in November for the fourth straight month to 60.4 (63.8 in October), and households’ expectations for long term inflation rose to 3.2%.

In yesterday's session, expectations on monetary policy continued to center the stage in financial markets. In particular, Jerome Powell expressed, in similar words than at the last FOMC meeting, that official interest rates can be hiked again if needed and warned that a few months of good economic data should not mislead Fed members.