Evolution of the international financial markets and evaluation of the main events and economic indicators of the previous day session. Available in English.
Risk-off session in financial markets as the conflict in the Middle East intensified with an Iranian missile attack on Israel. Global stocks closed the session with losses of around 1%, while sovereign bonds, the US dollar and gold all rose as investors turned to safe assets. Brent oil prices rose by more than 2% close to $74/barrel.
Inflation eased below 2% in Germany and Italy in September (1.6% and 0.7% yoy, respectively), as it did in Spain and France. ECB President Lagarde remarked recent data has strengthened the central bank's confidence in the return of inflation to target, sending the probability implied by futures markets of a 25bp cut in the October meeting to 90%.
Lower-than-expected inflation data on both sides of the Atlantic drove financial markets' sentiment. Preliminary figures from Spain and France showed headline inflation below 2%, at 1.5% and 1.2% respectively. In the US, the PCE price index fell to 2.2% from 2.5%, making solid progress towards the Fed's target.
Thursday's markets saw a mixed session across asset classes and geographies. In the Eurozone, peripheral spreads fell for all countries except France as the poor fiscal outlook continued to weigh on the country's sovereign debt.
Investors’ risk appetite soured yesterday. Sovereign bond yields rose across the board on both sides of the Atlantic. In the Eurozone, peripheral spreads widened a tad as French finance minister acknowledged the country's budget deficit could come in above 6% this year, leaving the 10-year French reference on par with the Spanish counterpart.
China’s central bank triggered a risk-on mood in financial markets yesterday by introducing the largest stimulus package since the pandemic to support its faltering economy: it reduced reserve requirements for banks, cut a key repo rate, and lowered the mortgage rate for homeowners.
Financial markets had a mixed start to the week as investors tried to reconcile seemingly contradictory signals. In the eurozone, government bond yields fell after September's PMI showed a weak manufacturing sector weighing heavily on the core economies. A sharp, unexpected deterioration in the French services PMI also pushed up the country's spread.
Investors ended the week on a slight risk-off sentiment. With no major macroeconomic data releases on either side of the Atlantic, traders seemed to consolidate the gains made on Thursday following the Fed's large rate cut amid a heavy trading environment as Friday was the quarterly expiration date for several options.
The Federal Reserve's decision to lower interest rates by 50 bp sent global stocks soaring during yesterday's session. Equities climed more than 2% in the euro area, and in the US, the S&P 500 reached a new all-time high, as stocks priced in the soft-landing scenario.
The Federal Reserve kicked off its monetary easing cycle with a 50 bp interest rate cut, taking the policy rate to 4.75%-5.00%. The FOMC cited "greater confidence" that inflation is moving sustainably to its 2% target and judged that the risks to its dual mandate are "roughly in balance". The committee sees rates falling another 50bp by year end.
Stronger-than-expected retail sales and industrial production data in the US renewed expectations of a soft-landing for the economy, just as the Fed is expected to lower interest rates today. Rate futures are reflecting a 65% probability of a 50 bp rate cut and a total of -116 bp over the remaining three meetings this year.
The continued repricing of the Federal Reserve's interest rate decision later this week was the main driver of financial markets during yesterday's session. The probability of a 50bp rate cut in the upcoming meeting rose to 70% from 50% last week, and the total amount of cuts in 2024 is now expected to be 120 bp, up from 100 bp.