German bond yields mostly edged slightly higher yesterday, but the moves were still quite limited. In the US, yields mostly fell somewhat in the evening, supported by weaker sentiment in equity markets. Intra-Euro-zone bond spreads narrowed, and the Italian 10-year yield touched 3% for the first time on record. The Eonia overnight rate, in turn, continued to fall to only 11bp.
European yields are set to see downward pressure this morning, but that is likely to change to small upward pressure later in the day.
Bigger moves were seen yesterday on FX markets and EUR/USD rose back above 1.39. A break above the March high 1.3967 would open more upside and add pressure on the ECB to do something about the strength of the currency.
European equities saw some losses yesterday, while US equities felt larger pressure (S&P 500 down by 0.90%). The pressure has continued overnight in Asia, and e.g. Japan is trading down by around 2.5% at the time of writing. Also European equities are set to open lower.
Irish composite PMI surges above 60
Even though the final April composite output PMI equalled the flash estimate of 54.0, it confirmed a rise from 53.1, and showed gains were broad based by country (though the index is released only for five Euro-zone economies). Irish PMI surged to 60.8, the highest in almost 8-year. Spanish PMI, in turn, rose to its highest in 7-years (56.3), while the Italian (52.6) and German (56.1) PMIs are only slightly short of their highest levels since 2011. Of the bigger economies, only France (50.6) is doing somewhat worse, but also it has seen a clear rebound from the levels seen early this year. As a result then, the composite output PMI is pointing to a clear pick-up in the Euro-zone GDP growth going forward.
Yellen not able to be dovish enough?
The highlight in today’s calendar will be the testimony by Fed Chair Yellen to the Joint Economic Committee of Congress on the monetary policy outlook for the US economy at 16:00 CET. The message should be largely unchanged compared to the Fed’s meeting late last month, but risks are again that something she says will be taken out of context and interpreted hawkishly. In addition, she may sound a bit less dovish compared to when she has shared her own views as opposed to those of the FOMC. Risks are thus towards higher yields in response to Dr Yellen’s message.
Elsewhere in today’s calendar, German March factory orders will be released at 8:00 CET, French industrial production for the same month at 8:45 CET, while US Q1 productivity and unit labour cost data will have their turn at 14:30 CET.
New 5-year German benchmark out today
Germany will launch a new 5-year benchmark for EUR 5bn today. US auctions, in turn, will continue with the USSD 24bn 10-year note offering.
Nordea