The Fed eases bond tensions: three key factors that moved the market

True to form , September has entered the markets with a patina of pessimism, though without derailing sentiment . In a week of strong emotions but ultimately subdued movements, the main European markets have continued to reverse much of the optimism they displayed in the first half of August, with no reason to push further ahead to reach historic highs.

With the bond market as the main driver of market movements, the Ibex has adjusted to the performance of its regional peers and closed with a 0.57% drop, marking its second consecutive week of declines , a development that has not occurred since last June.

Despite this, and despite its inability to settle above the 15,000-point level, the Spanish index remains the best performer of the year among the major global indices, with gains of around 28%.

Away from Europe, however, the US is experiencing a more neutral week of results, with hopes pinned on the Fed neutralizing any signs of concern and good judicial news for Alphabet and (indirectly) Apple doing the rest.

1. Dancing with bonds

And there has been no shortage of reasons for investor concern, as alarm bells have been ringing at times in the bond market , considered by many experts to be the hotspot that could derail the positive trend in the stock markets .

The surge in long-term debt yields, particularly evident in countries such as the United Kingdom (the 30-year bond yield reached its highest level since 1998 on Tuesday), France (the same benchmark climbed to 2009 levels), and the United States, has once again led investors to fear that something dangerous is brewing regarding the deteriorating public finances of several of the world's largest economies.

These fears were fueled by certain information (especially the eurozone inflation figure , which came in above forecasts) that seemed to rule out the possibility of further rate cuts, and a series of political tensions —with France at the center— that were set to make it difficult to correct fiscal imbalances.

However, the week is ending on a much calmer note , as investors appear to have convinced themselves that the problem will not worsen, leading to a sharp drop in bond yields in recent days.

2. The Fed, the solution for everything

The key to this easing of tensions once again lay in the hands of the Fed . And not because the central bank or any of its members made any kind of announcement to allay investors' fears, but because investors were once again convinced that the world's largest central bank would announce an interest rate cut at its meeting on September 16 and 17.

This idea, which was already given credence by Jerome Powell in his speech at Jackson Hole in August , has been reinforced in the last week by a succession of data from the US labour market, culminating this Friday with the monthly employment report, which have confirmed the weakness of the labour market in the country , which is understood to incline the members of the central bank to lower interest rates.

The market's positive reaction to these figures seems to restart the cycle in which bad data is positive , as it brings central bank intervention closer, and vice versa. However, it can also be understood that what investors are interpreting is that the economy is neither so bad—after all, data like the ISM manufacturing index continues to point to expansion—nor so hot as to fuel a lasting spike in inflation that would prevent the Fed from taking action. In short, they are once again betting on the "Goldilocks" scenario that has characterized much of Wall Street's long bullish cycle since the last financial crisis.

In fact, this Friday's poor employment data, although initially greeted with positive sentiment on the stock markets, eventually gave way to declines (from record highs, it must be said), showing that there is a limit to the deterioration in economic conditions that investors are willing to tolerate.

3. The political risk saga returns

Meanwhile, the European market is preparing for a new chapter in its never-ending saga of political risk. Next Monday, François Bayrou's French government will face a vote of confidence, which there is a high probability of its fall, ushering in a new period of political uncertainty that threatens to engulf even President Emmanuel Macron.

The risk is not only that the paralysis will place France in a perilous financial position once again, unable to make the necessary adjustments to clean up its accounts . More relevant for European markets in general is the danger that, with its crisis, France will end up adding new layers of difficulty to political decisions in the region , such as those concerning military spending, for example.

The risk of this is that many of the factors that have led investors to bet decisively on Europe in 2025 will end up being blown out of proportion, leaving the Old Continent's stock markets once again lagging behind Wall Street. France isn't the only hotspot in the region, which is also seeing the upcoming elections in the Netherlands approaching, with the same risk of paralysis due to the inability to form a solid majority in a parliament that is likely to become heavily divided.

With these factors on the table, investors have found few certainties to place their sector bets, leaving an unclear picture in which the most evident sentiment has been skepticism toward the energy sector, which has led the declines in a week of renewed cuts in oil prices, with investors worried about the OPEC meeting this weekend.