Bund yields dropped more than 5 bp yesterday and took yields on semi core down with it, while equities were down significantly on both sides of the Atlantics. Risks of an escalating conflict in Ukraine clearly favors safe-haven positions in the near term and sovereign bond yields could fall further if geopolitical risks increase in the coming days. The Russian central bank hiked rates by 150 bp yesterday.
However, the numbers that were out yesterday surprised on the upside. The US ISM manufacturing index increased to 53.2 in February from 51.3 in January. New orders rose clearly, but inventories rose even faster, which could indicate that activity will be on the soft side in the near term. The Euro-area manufacturing PMI was revised up a tad to 53.2 in the final February reading from 53.0 in the flash. The upward revision was driven to a large extent by an upward revision to the French number. Italian and Spanish PMIs around 52 is consistent with a clear recovery in the periphery.
Yesterday, ECB President Draghi testified before the Committee on Economic and Monetary Affairs of the European Parliament. With less than a week to the Governing Council meeting no policy signals can be given and no policy signals can be read from the introductory statement. However, Reuters quote Draghi for saying that there is a risk that inflation expectations could be dis-anchored. The context is not very clear and I would not put too much emphasis on it. Still, it will be a close call Thursday and expectations seem to be building for an end to the SMP sterilisation. I still the timing of such a move a bit odd with money markets looking somewhat less tight now than earlier in the year.
Austria is on the market on Tuesday with 1.2bn euros of bonds maturing in 2018 and 2023. There are no major data releases scheduled for today.
Nordea