Longer German bond yields edged slightly higher yesterday and the curve steepened, but trading volumes were very subdued due to the US and UK holidays. Spanish and especially Italian bonds rallied hard in the aftermath of the European elections. The Italian 10-year yield plunged by almost 20bp back to below 3%. This rally should have more room to go in the near term.
Long yields are likely to creep further up today, and market activity should pick up.
European equities had a positive day, and e.g. the Stoxx 600 index hit its highest level since early 2008.Asian equities, on the other hand, are trading mixed this morning, but European equities should have some more upside today.
Bank of Japan already eying stimulus exit?
Reuters reports, citing current and former central bankers familiar with internal discussions, that the Bank of Japan would have begun shifting its focus from supporting growth to ways of phasing out its massive stimulus. The story adds Mr Kuroda is keen to avoid market confusion and volatility created by the Fed, when it first started talking about tapering its bond purchases, but the BoJ has no plans to publicly suggest a drawdown of stimulus any time soon. Considering that the BoJ is not yet close to reaching its 2% inflation target on a sustained basis, while the Japanese economy remains vulnerable, not least because April’s consumption tax hike, talk of exiting stimulus is premature. In addition, if Mr Abe finally goes ahead with sizable labour market reforms – admittedly a big if – the economy will need very easy monetary policy for a longer time. However, the story does suggest that the threshold for the Bank of Japan to increase its stimulus is not particularly low.
US durable goods and consumer confidence ahead – EU leaders prepare for a summit
Today’s US data calendar includes a number of data releases, though nothing hugely interesting. April durable goods orders will be released at 14:30 CET, S&P / Case-Shiller and FHFA March house price data will be out at 15:00 CET, Consumer confidence by Conference Board at 16:00 CET and the Richmond Fed manufacturing index at the same time.
In the Euro zone, EU leaders will meet at 19:00 CET to discuss the outcome of the European Parliamentary elections and high-level appointments, not an easy task. In addition, the ECB’s Praet will chair a panel discussion at 10:00 CET, Nowotny will speak at 11:15 CET, Draghi will participate in an armchair discussion at 15:30, and BoE’s Carney at 20:00 CET.
The ECB’s main refinancing operation allotment at 11:15 CET, in turn, should see a higher uptake due to the higher Eonia fixings seen lately. The overnight rate climbed to 42.5bp yesterday, and there are still many days left in the month, though a fresh liquidity injection should limit the upside pressure in the near future.
US, Dutch and Italian auctions
Plenty of auctions will take place today. The Netherlands will sell its 5-year benchmark for EUR 1.5 to 2.5bn, while Italy will offer 2-year zero-coupon bonds for EUR 2.5 to 3bn and Sep 2018 inflation-linker for EUR 0.5 to 1bn. US benchmark auctions, in turn, will be set in motion by the USD 31bn 2-year note offering.
Nordea