German bond yields rose yesterday. Even though Euro-zone March inflation numbers were soft (see more below), they were not weak enough to give bonds another boost. The rise in yields moderated towards the evening, and e.g. the 10-year yield finally ended the day higher by only around a 2bp. In the US, yields actually finally ended the day mostly lower after the Fed’s Yellen’s comments were interpreted in a dovish light (see more below). Intra-Euro-zone spreads saw somewhat mixed performance.
European equities experienced mixed performance, but US equities rallied. S&P 500 closed higher by 0.79% and is approaching its record highs again. Resistance for further gains is thus looming. Asian equities are trading mostly up this morning, helped by the official Chinese manufacturing PMI (edging up from 50.2 to 50.3, i.e. signalling better performance than the fall in the Markit/HSBC PMI from 48.5 to 48.0), though the moves have been quite limited. Also European equities are set to open higher.
As the German 10-year yield was unable to fall below the March lows of around 1.5%, the rebound higher in yields looks to have more to go in the near term. Yields are thus set to rise today.
Yellen reassures easy policy not going anywhere
Fed Chair Janet Yellen said yesterday the recovery still felt like a recession to many Americans, and the Fed’s commitment to promoting the recovery would be needed for some time still. She added she believed that view was widely shared by her fellow policymakers at the Fed. Even though the basic message was quite well in line with the Fed’s earlier message, coming after her first post-meeting press-conference, which was interpreted somewhat hawkishly, yesterday’s comments offered some soothing. They do act as a reminder, though, that the US economic recovery needs to proceed much further, before the Fed is ready to start raising rates.
Euro-zone inflation falling towards zero – does the ECB care?
The March flash estimate brought Euro-zone inflation closer towards zero. At 0.5% y/y, inflation is at its lowest since 2009. Excluding energy, food, alcohol and tobacco, prices rose by 0.8% y/y (vs 1.0% in February), a slightly faster pace than the 0.7% seen last December but equalling the second lowers reading during the Euro era. Easter-related effects may have affected the numbers, and the ECB can easily blame the fall as being temporary. The numbers are thus unlikely to prompt more easing from the central bank later this week.
ISM index still struggling
The highlight in today’s data calendar will be the US manufacturing ISM index at 16:00 CET. After a surprise plunge in January, the index rebounded partly in February. Another small increase looks likely, but risks are to the downside.
Elsewhere in the calendar, the final March manufacturing PMIs for the Euro zone will be released at 10:00 CET, UK manufacturing PMI at 10:30 CET, the final Markit US manufacturing PMI at 15:45 CET and US February construction investment at 16:00 CET. In addition, the ECB will release the latest main refinancing operation results at 11:10 CET.
Nordea