German bond yields headed higher yesterday, with the 10-year yield rising by 3bp. The US bond market was more resilient and the 10-year yield ended the day close to unchanged.
Core bonds yields are likely to reverse yesterday’s increases today, as geopolitical worries persist and equity market sentiment has become more wobbly.
Intra-Euro-zone spreads widened again, with large moves seen in Portuguese and Greek yields, the latter jumping by 25bp in the 10-year sector. The long rally in peripheral bonds has raised an increasing number of questions about how long the gains can continue. In short, even though more volatility will be in store going forward, the rally has probably not run its course yet.
European equities managed to close with small gains yesterday on the overall level (though e.g. Spanish and Italian markets lost more than 1%), but pressure re-emerged in the US. S&P 500 tumbled by 0.97% to end at its lowest since late May. The technical picture has worsened also for US equities, suggesting more losses ahead. Asian equity markets are trading with losses this morning, and also Europe is set to open lower.
US sentiment indicators send strong signals – inflation pressures bound to pick up soon
The US non-manufacturing ISM index surged to its highest since late 2005, jumping from 56.0 to 58.7. The details were broadly positive as well, with new orders leaping to 64.9 and the employment index rising to 56.0. Only a fall in new export orders was a small disappointment.
With the manufacturing ISM index at 3-year highs, the ISM indices are pointing to strong performance in the US economy going forward. It would be surprising, if such performance did not start to be reflected in also wage and inflation pressures picking up later this year.
Italian GDP and German factory orders ahead
Italian Q2 GDP numbers are likely to show that the economy returned to growth after the surprising contraction in Q1, albeit barely. Being at the brink of another recession, the Italian economy will be no match for the respectable 0.6% q/q growth seen in Spain in the second quarter. The Italian data will be released at 10:00 CET.
Elsewhere in the calendar, German June factory orders will be released at 9:00 CET, UK June industrial production at 10:30 CET and US July trade balance at 14:30 CET.
On the issuance front, Germany will re-open its 5-year benchmark for a rather modest EUR 3bn.
Nordea