Bonds mostly gained yesterday on both sides of the Atlantic, but the move lower in both the US and German 10-year yields was only about 1bp. Still, the pattern is becoming clear especially in the US again: after a jump higher in yields last week, yields are creeping lower again. That move looks to have more to run today.
Intra-Euro-zone spreads experienced some mixed performance yesterday, while equities felt pressure. S&P 500 retreated by 0.22%, while European equities saw somewhat bigger declines. Asian equities are trading mixed this morning, while US equity futures are trading slightly up on the back of positive earnings from Apple late yesterday. Also European equities are set to open higher.
Euro-zone PMIs continue to show resilience – US new home sales plunge
Euro-zone PMIs continued to defy gravity. The composite output PMI climbed to its highest level in almost three years, driven by strong gains in Germany, where confidence roughly took back the retreat seen in March. French PMIs retreated after the suspicious-looking jump the month before, but only gave up part of the big gains seen in March. Confidence saw a clear improvement outside Germany and France, but the details will not be known until early next month. Overall, another positive sign from the Euro-zone economy that will ease pressure on the ECB to some extent, though it is the inflation outlook that is causing more worries at the moment.
In the US, new home sales surprisingly plummeted by 14.5%, from 449k to 384k the lowest since last summer. These numbers were likely still affected by the bad weather seen earlier this year, and the market reaction to the data was not big. Still, the numbers do point to a housing recovery losing steam.
Spain to revise its borrowing needs down
Spanish Economy Minister de Guindos said yesterday the Spanish Treasury would revise its net borrowing requirement of EUR 65bn lower in the coming days on the back of increasing tax receipts. The Treasury chief, in turn, said Spain may start issuing inflation-linked bonds soon. Yesterday’s comments are a further illustration of how the tide has turned: realized development in countries like Spain can also beat expectations, leading to lower borrowing needs. However, it is important that improving growth forecasts are not taken as a sign that further structural measures would not be needed, which appears to be a sizable risk in e.g. France.
European Commission confirms Greek primary surplus – further debt relief ahead?
The European Commission confirmed yesterday Greece had reached a primary budget surplus, i.e. public balance excluding interest and one-time payments, of EUR 1.5bn last year, ahead of the target. Reaching a primary surplus had been made a condition for offering more debt relief for the country. As there seems to be little appetite in the creditor-countries to write down loans given to Greece, the relief will most likely again take the form of lower interest payments and longer maturities, and the discussion are unlikely to be really started before the summer. Considering the wafer-thin majority the Greek government currently has in the Parliament, the risks of a collapse of the government and early elections remain real.
German Ifo and Draghi’s speech ahead
Confidence numbers will continue flowing in in the Euro zone today, with the French INSEE manufacturing confidence out at 8:45 CET and the German Ifo at 10:00 CET. However, coming after the flash PMIs yesterday, these numbers will receive less attention. In the US, March durable goods orders and weekly jobless claims will be out at 14:30 CET.
There will be plenty of ECB speeches again, which should retain a dovish tone and thus support the demand for bonds. Knot will speak at 10:30 CET, Mr Draghi at 11:00 CET and Constâncio at 18:15 CET.
Plenty of bond auctions in store
Today’s issuance calendar is rather packed. Spain will re-open bonds maturing in 2017, 2019 and 2024 for a combined EUR 4.5 to 5.5bn, while Italy will auction 2-year zero-coupon bonds for EUR 3 to 3.5bn and 10- & 12-year linkers for EUR 1.5 to 3bn. In the US, this week’s benchmark auctions will be concluded by the USD 29bn 7-year note offering.
Nordea