Bond yields fell on Friday ahead of weekend, while intra-Euro-zone spreads narrowed in the semi-core names. The German 10-year yield ended the day lower by around 1.5bp, while the corresponding move for the US yield was 3bp. Curves saw flattening pressure.
Both US and German yields continue trading towards the upper ends of their trading ranges for the past few months. Geopolitical worries are still limiting the upside potential in the near term, but improving US data should gradually open more upside. Today, we are likely to see another small move lower in yields.
Equities continue to do rather well. In the US, S&P 500 just hit new intraday record highs on Friday, before some profit taking was seen and the index finally closed lower by 0.29%. Some resistance for further gains is thus felt around the current levels. Asian equities are trading with broad gains this morning despite disappointing Chinese economic data (see more below), suggesting hopes for more stimulus from China are growing again. Still, European equities are headed for a negative open.
China’s PMI disappoints again – new stimulus in the pipeline?
The HSBC/Markit flash March manufacturing PMI for China disappointed once again, falling from 48.5 to 48.1, the fifth consecutive fall and an 8-month low. Some of the details were better, though, with both the employment index and new export orders (though not total orders) rising clearly. The weak data has increased talk of new stimulus being introduced, but such hopes are likely to be disappointed at least in the short term. Developments in China thus have clear potential to cause further worries in the near future.
French far-right gains in polls – another worry for Mr Hollande
The French far-right National Front (FN) made gains in yesterday’s French local elections, winning its first mayoral seat since 1995 and leading in many other towns ahead of the second round of voting next Tuesday. Nationally, the FN took some 7% of the votes, as it had candidates in only some 600 of the 36000 French constituencies, illustrating it still has some work to do, if it aims to become the biggest political force in France. Voter turnout was a record-low 61.5%, illustrating voters were not really motivated by the elections. Mr Hollande’s Socialists with their allies were reported to have taken 43 per cent of the vote, behind the 48% for the opposition conservatives, according to exit polls. No doubt the French political landscape is changing, and the National Front is set to record much higher numbers in the elections for the European Parliament in May – something that may also cause some volatility for French bonds ahead of the elections.
LTRO repayments continue flowing in
The ECB announced banks would repay almost EUR 19bn of LTROs this week, the highest number since December and the third week in a row of above EUR 10bn. The pace of repayments has thus picked up, leaving upside potential for short money market rates in the near term. The ECB could of course change all this with new easing measures, but the recent slight rise in rates is unlikely to be enough to trigger more easing.
PMIs setting the week in motion
The week will get a brisk start with the release of the Euro-zone PMIs today. The flash numbers for March will be released at 10:00 CET for the Euro zone, while French data will be out already at 9:00 CET and German numbers at 9:30 CET. Risks are tilted to the downside in these numbers. The US Markit preliminary PMI, in turn, will be out at 14:00 CET. In addition, the ECB’s Liikanen will speak at 10:00 CET and Linde at 16:00 CET.
Later in the week, the German Ifo will be released tomorrow, along with US housing market and consumer confidence data, while the Euro-zone economic sentiment indicator, preliminary March German inflation and the US February personal spending report will be Friday’s business.
New Dutch 10-year benchmark out this week
The Netherlands will launch a new 10-year benchmark tomorrow for a minimum of EUR 5bn. Italy, in turn, will sell zero-coupon bonds tomorrow and BTPs and floaters on Friday. In the US, USD 32bn of 2-year notes will be auctioned tomorrow, USD 13bn of 2-year floating-rate notes as well as USD 35bn of 5-year notes on Wednesday and USD 29bn of 7-year notes on Thursday.
Around EUR 19bn of coupon and redemption payments from Belgium should support Belgian bonds this week.
Nordea