Core bond yields continued to rebound on Friday, and curves saw some bear-steepening. The German 10-year yield ended the day at 0.86%, up by 4bp, while the US 10-year yield climbed by roughly the same amount to 2.19%.
Intra-Euro-area spreads mostly narrowed clearly. Greek bonds led the rally, with the 10-year yield falling by almost 90bp to back below 8%. Greek Prime Minister Samaras was facing the reality and admitted the country was in discussions on a precautionary credit line for the time after its current programme ends.
Equities rallied hard on hopes of easier monetary policy. In Europe, the Stoxx 600 jumped by 2.79%, while in the US S&P 500 rallied by 1.29%. Asian markets have headed higher as well this morning (Japanese TOPIX up by around 4%, helped also by a story in the Financial Times that Prime Minister Abe was reconsidering the next consumption tax increase). European equity markets are set to open higher as well.
Amidst a rather light calendar, Friday’s moves are likely to be extended today, i.e. somewhat higher core bond yields and equity prices. In general, the nervous sentiment is unlikely to be behind yet.
BoE Chief Economist sends dovish signals
BoE’s Chief Economist Haldane said on Friday a downturn in global growth prospects and the lack of domestic inflation pressures meant the BoE could wait before starting to increase interest rates. He added the market pricing for the first hike in mid-2015 was not a bad bet. He sounded a bit less dovish over the weekend, when he called the recent market moves a possible overreaction.
Euro-area PMIs, US inflation and Chinese GDP
This week’s calendar has plenty of interesting data to offer. Chinese growth no doubt slowed further in Q3, but by how much. Disappointing figures would not be received well at a time fears of a global slowdown have been increasing. Q3 GDP numbers will be out early tomorrow. The UK will release Q3 GDP numbers on Friday.
In the US, the highlight will be the September inflation data on Wednesday. Expectations of the first rate hike have already been pushed forward, so another soft report would not necessarily change the market pricing that much.
Euro-area PMI’s will be ahead on Thursday, and the manufacturing PMI will likely fall below 50 for the first time in more than a year, increasing worries about another recession. In addition, EU leaders will gather to yet another summit on Thursday and Friday to discuss the economic situation in the EU, among other matters. Euro-area leaders will have their own session, and differences of opinion regarding fiscal policy and budget rules are set to feature in the discussions. The ECB, in turn, is set to start its covered bond purchases this week.
Corporate earnings reports will pick up more speed this week. E.g. 129 S&P 500 companies are due to report during the week.
Today’s calendar looks rather light. The ECB’s Constâncio is set to speak at 13:50 CET and also Cœuré during the day, while German and French finance ministers will meet.
Belgium setting the supply week in motion – big boost from coupon and redemptions
This week’s supply will concentrate on the long end of the curve. Belgium will start this week’s bond auctions today, when it will re-open bonds maturing in 2024, 2041 and 2045 for a combined EUR 1.5 to 2bn. Finland will tap its 2028 bond tomorrow for a maximum of EUR 1bn, while Germany will sell its 2046 bond for EUR 2bn on Wednesday. Finally, the US will offer USD 7bn of 30-year TIPS on Thursday.
Coupon and redemption payments from EUR government bonds will provide a huge EUR 50bn boost this week, the biggest weekly amount remaining for the year. These flows will stem mainly from French and Austrian bonds. The large cash flow injection should keep the bond market supported.
Nordea