US equity markets inched to new highs with the ok US and Chinese data and the US 10-year Treasury yield jumped 5bp to 2.57%. Bund yield should feel the upward pressure today.
Yesterday core yields started the day slightly higher as the Chinese PMI-data supported the risk sentiment and pushed investors away from safe haven assets. Nevertheless, the German 10-year Bund yield ended the day basically unchanged at 1.25% ahead of the Thursday’s ECB and US payrolls.
As expected bank overnight lending rate Eonia came down to 3bp from the 34bp seen prior to the turn of the month and quarter.
Has the Portuguese tide turned?
Portuguese tensions eased and the Portuguese 10-year yield came slightly lower to 3.6%. Worries that the government may have to step in to calm the markets over banking problems have pushed yield higher the last days.
The 10-year Portuguese bond yield has come down substantially from the 17% recorded in in midst of the European debt crisis. The strong development of Portuguese bonds has made the market more vulnerable to a correction.
Euro area is stuck for now
The final Euro area manufacturing PMI’s came out at 51.8, a tad lower than the flash estimate in June. The figure slipped to a 7-month low and lower than 52.2 seen in May. Growth of output and new orders slowed in May.
On a country basis, confidence especially in Spain has brightened. Spanish manufacturing PMI’s rose to an 84-month high of 54.6. Reading improved also in Ireland but deteriorated in all other Euro area countries.
In the second quarter the manufacturing PMI has averaged 52.4, which is slightly lower than 53.4 in the first quarter. Thus, Euro area growth is to stay subdued in the second quarter, which will support hopes on ECB continuing loose monetary policy.
So how about those jobs?
In the US the ISM was roughly unchanged in June at 55.3, when consensus was looking for a small uptick. The most forward-looking new orders component rose to 58.9, whereas employment index was unchanged.
US employment numbers continue to be a major driver for the US rates as labour market tightening brings Fed’s first rate hike closer.
Today US ADP report will give the first clue on US employment report due already on Thursday this week. The consensus is looking for a rise to 200k in June from 179k the previous month. One should interpret ADP numbers cautiously, however, as they have not always been a good predictor of the official employment.
In addition, markets will be looking for hints for Fed outlook from the speech of Fed’s Yellen today.
Some auctions and issuance volumes
Elsewhere in the calendar Germany auctions 4bn euros of 5-year bonds. Portugal has opened books on a new 10-year dollar denominated bond.
Nordea