The week can be summed up in a few words. Economic statistics from the sleeping giant (China) failed to shake it out of its torpor. The services PMI came in at 53.9, against a forecast of 56.2, further undermining the long-awaited recovery. In the United States, investors took note of the Fed's minutes, and to say the least, they were not disappointed. When they learned that "Nearly all participants considered it appropriate or acceptable to maintain the target range for the federal funds rate between 5% and 5.25%.... Some participants indicated that they favored a 25 basis point increase in the target range for the federal funds rate at this meeting, or that they could have supported such a proposal", bond yields soared to the point where the US 10-year broke through the line that had joined the highs since last October.

The double effect came from the job market. Up until now, its resilience had fueled the rise in stock market indices, as it lent credence to the much-hoped-for scenario of soft-landing against a backdrop of tame inflation, and hence the expectation of a Fed pivot. But that was before the paradigm shift. With 209k jobs created versus 230k expected, investors are hoping that this will take some of the pressure off the Fed, even if it believes it is not finished with its monetary tightening. In this respect, a further hike seems certain for July, but the way ahead remains open.

(Source: Bloomberg)

All in all, equity indices are navigating a particularly narrow path. If employment remains buoyant, the Fed will continue to raise rates, which will weigh on growth. But if employment falters, consumption will follow, which isn't good for the stock market either, rekindling fears of a recession. In any case, caution remains the watchword. Note also that the US 2-year yield reached a new multi-year high of 5.11%, while the 10-year is close to its highest level of the year at 4.09%. As for Germany, the 10-year Bund has broken out of the consolidation channel it has been in since April at 2.55%, reviving the upward momentum towards 2.77% and even 3.01% in the longer term.