German bond yields fell and the curve bull-flattened yesterday, as Euro-zone PMIs disappointed. Longer US yields, however, ended the day higher, as US data looked much better. Intra-Euro-zone spreads widened a bit in the semi-core and narrowed some outside the semi-core.
The German 10-year yield is again approaching the support at around 1.30%. Barring a fresh bout of bullish news, this support should hold and a small rebound higher should follow.
Equities felt some pressure, especially in Europe. In the US, S&P 500 closed marginally lower. Asian equities are trading slightly up this morning, and Europe is set to open a bit higher.
Euro-zone PMIs suffer a setback, but mainly in France and Germany
The Euro-zone composite output PMI index fell in June from 53.5 to a 6-month low of 52.8. The falls were driven by weaker confidence in the two biggest Euro-zone economies, Germany (from 55.6 to 54.2) and France (from 49.3 to 48.0). As German confidence dropped from a rather high level, the French data is much more worrying. Outside the biggest two, confidence actually fell only marginally, on the average, but the details will be available only early next month.
US data with positive surprises
US PMI data looked much better than the Euro-zone numbers. The Markit flash manufacturing PMI for June surprisingly rose from 56.4 to a 4-year high of 57.5. It is clearly higher compared to the manufacturing ISM index, but both indices are sending a similar message: the outlook for the manufacturing sector has improved clearly lately.
US existing home sales, in turn, jumped from 4660k to 4890k in May, the best reading since last October, suggesting the housing market recovery is picking up momentum again.
Yesterday’s data did not deliver any bigger blows to the bond markets. It is wage and inflation data that is most closely followed at the moment, and these data releases need to point to more inflation pressures for the Fed to become more hawkish in its communications.
German Ifo and US consumer confidence & new home sales ahead
The brisk pace of data releases will continue today. Anything but a drop in the German Ifo index at 10:00 CET would be a surprise after yesterday’s PMIs. The ECB, in turn, will reveal the latest results of its main refinancing operation at 11:10 CET.
In the US, S&P / Case-Shiller house price data will be released at 15:00 CET, while Conference Board consumer confidence and May new home sales will be out at 16:00 CET.
In central bank speeches, BoE’s Carney, Bean, Miles and McCafferty will speak at 10:30 CET, while the ECB’s Nowotny will have his turn at 14:00 CET, the Fed’s Plosser at 14:05 CET, the ECB’s Cœuré at 15:50 CET and Knot at 17:00 CET.
Bond auctions from the Netherlands, the US and the ESM
There will be plenty of issuance in store today. The Netherlands will re-open bonds maturing in 20 16 and 2042 for a combined EUR 1 to 2bn, while the European Stability Mechanism will sell its November 2023 bond for up to EUR 1bn. This week’s US auctions, in turn, will start with USD 30bn of 2-year notes.
Nordea