Atmosphere: A little flexibility, Jerome! There has been no shortage of macroeconomic milestones in recent days, with several monetary policy decisions (Bank of Canada, Bank of Japan, European Central Bank) and a whole host of activity indicators. To sum it all up in one sentence, let's just say that the economic dynamic has had some misfires without collapsing and that investors have detected the first cracks in the determination of central banks to continue raising rates. This context led to a strong rally in equities at the beginning of the week, but this was offset by the fall of American tech giants after a series of bad results.
Rates: Investors' new bet on a less aggressive Fed led to a drop in the yield on 10-year T-Bonds to below 4%. All shorter maturities are now higher yielding, which means two things: first, the market fears the return of the recession in the U.S., and second, it thinks the rate hike cycle is coming to an end. In continental Europe, the 75 basis point monetary tightening announced by the ECB on Thursday was expected, but this did not prevent bond yields from rising to 2.11% in Germany and 4.19% in Italy over 10 years. British Gilts, on the other hand, eased to 3.47% after Rishi Sunak was named as the successor to Liz Truss. Sunak is seen as a relatively reasonable choice.
Currencies: Once again, the Fed's presumed inflexion led to a decline in the dollar. At the same time, the ECB tightened its monetary policy by 75 basis points, and the euro took advantage of this to climb back onto an equal footing with the greenback. Since the beginning of October, however, the dollar has gained further ground against the yen and has begun to reverse the trend against the ruble. In Europe, the stabilization of the situation in London has allowed the pound sterling to recover slightly to 0.864 pounds per EUR. The single currency, for its part, rose to CHF 0.9912 against the Swiss franc.
Crypto-currencies: Crypto-investors were able to regain a little optimism this week, with bitcoin ending a long period of low volatility by recovering almost 5% since Monday. The digital currency is hovering around 20,500 at the time of writing. In its wake, ether is outperforming BTC by a wide margin, climbing 16% over the same period, a sign that a dose of risk appetite has returned to the crypto-asset market this week. A renewed optimism that is in line with the hope that central bankers will act in favor of risky assets in the coming months.
Timing: The fortnight that opens is a real pivotal period for financial markets. This is because the U.S. central bank will make a new monetary policy decision and comment on the current context on Wednesday. Investors are hoping that Fed boss Jerome Powell will change his tune, even if subtly. And let's not forget the mid-term elections on November 8. In an ultra-polarized country, a reversal of power in favor of the Republicans would have important consequences.
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