Market In-Review: Markets Pushed Back As Volatility Rises

•  Markets experience sell-offs as bond yields surge in Europe and the U.S.
•  U.S. stocks record weekly decreases with the S&P500 losing 0.7%
•  Europe stocks see larger sell-offs with FTSE 100 losing 2.6%
•  Draghi expresses will to keep Greece in Eurozone
•  USD and EUR strengthen vs. currencies worldwide

The weekly session has been quite a remarkable one, with Yields surging globally. The U.S. 10 year bond's yield added no less than 0.28%. At 2.41%, this is the highest it has been since September of last year. Eurozone bonds suffered similar fate, with the German 10 year yield nearly doubling, as they ended the week at 0.84%. This, in turn, has led to quite the ripple effect in practically all major assets. Equity, in particular, suffered quite a setback. The S&P 500 lost 0.7%. At 2092.83 points, it is the lowest the index has been since the beginning of May. Likewise the Dow lost 0.9% during the week, following a 1.2% slide at the preceding week. Decreases were also seen in European markets. The DAX index lost 1.9%, the CAC 40 decreased 1.7% and the FTSE 100 dropped no less than 2.6%.

Causes for the bond sell-off are quite abundant. The week itself hosting quite a barrage of economic releases obviously had to do with it. Among those with a significant effect on the markets we note the U.S. April Personal Income data, which saw a 0.4% Month over Month increase, surpassing the analyst consensus of +0.3%. Likewise, May's ISM Manufacturing increased to a level of 52.8, giving positive preliminary indications for that month.

Tuesday saw some positive indications regarding the European economy as a whole and specifically Europe's demand side, as May's Consumer Price Index estimate indicated an increase in annual inflation to 0.3%, from 0% in April. This alone led to quite a violent response in FX markets, seeing EUR/USD add some 2% during the daily session, though some of those can be attributed to Fed Governor Lael Brainard, who dispersed a few dovish comments, speaking in Washington.

Much of the weekly upward boost to yields was recorded on Wednesday, as ECB President Mario Draghi delivered a press conference, following the central bank's rate announcement. Draghi expressed confidence in the currently implemented quantitative easing, saying it has "contributed to a broad-based easing in financial conditions." The effects of the measures was further said to were "working their way through the economy" and "contributing to economic growth, a reduction in economic slack, and money and credit expansion." With a large Greek repayment scheduled, at that time, for Friday, Draghi further soothed some of the concerns for an imminent Grexit, as he said that the ECB seeks to keep Greece in the Euro, although he did emphasize that a "strong agreement should be reached."

Increasing pressure towards the end of the week

Greece eased some of the pressure on Wednesday, as it said that it will not meet Friday's deadline of paying EUR 300 million to the IMF, but rather bundle the month's payments to one large June 30th payment. The most significant economic release of the week was recorded on Friday, as the U.S. Nonfarm payrolls surged to no less than 280K, far exceeding analyst expectations for 226K. Unsurprisingly, the figure had a rather significant effect on the U.S. markets, and was responsible for yields of the 10 year U.S. bond surging by nearly 0.1%.

The increase of expectations for hawkish policy in Europe and the U.S. has led to strengthening of their currencies. The USD strengthened 0.3% during the week vs. the AUD. Similarly, NZD/USD decreased 0.85% and USD/JPY increased 1.2%. The EUR concluded an even more impressive week, adding 1.16% vs. the Dollar.