Yields continued to climb on both sides of the Atlantic yesterday, more so in the US than in Europe. The German 10-year yield edged higher by about 2bp, but has not even fully offset the decline seen last Friday. The US 10-year yield, in turn, climbed by 4bp to end at its highest level in almost a month. The US yield has risen in eight of the past nine trading days, implying upward momentum in building.
Yields should have more room to increase today.
Intra-Euro-zone spreads corrected rather clearly wider for a change, but the corrections higher should be seen as a buying opportunity.
European equities gained a bit more, which marked the fifth consecutive daily increase for the Stoxx 600 index. In the US, S&P 500 closed marginally lower (-0.02%). Asian equities are trading mostly lower this morning.
Tea is not totally cold
Eric Cantor, the Republican House majority leader and thus the member ranked second-highest in the House surprisingly suffered a primary election defeat to a Tea Party challenger, David Brat. The Tea Party has lost a lot of influence lately within the Republican Party. However, this primary election win could easily give it another boost, which in turn would mean more mainstream Republicans might have to move more to the right again, and especially take a harsher stance on immigration, increasing polarization in US politics once again. The effect of one primary election should not be overplayed, but yesterday’s results certainly caused headaches for the leadership of the Republican Party.
US small business optimism improved clearly
The US small business optimism index climber further in May, from 95.2 to 96.6, the highest since late 2007. The numbers are another positive signal coming from the US economy and imply also small businesses are finally starting to see better prospects ahead.
Where’s the BEF?
This year’s edition of the Brussels Economic Forum expressed happiness the crisis had receded, acknowledgement that the current situation was not great and the road ahead was long, potential for the future, but scepticism of whether the required structural reforms could be carried out. In some cases, there were already signs that as market pressure had eased, the reform path had reversed.
Regarding individual countries, dissatisfaction was voiced regarding the reform efforts of Germany, France and Italy. Spain received clearly better grades.
Mostly gone were the visions from last year about how the European Union could be deepened further in new dimensions, and the focus was more on how to take most out of the steps already taken and how to complete the Single market. Mr Asmussen of the German government even proposed a limited Treaty change to put all new governance structures of the past year under a singly umbrella.
One thing remains clear, also based on yesterday’s discussions: Europe has a lot of further work to do, if it wants to be able to perform in the increasingly tough global competition.
Even Cyprus about to make a comeback to markets
Cyprus hired lead managers for an upcoming bond issue, which would follow a roadshow with investors. According to President Anastasiades, Cyprus is expected to return to financial markets before the end of the month, a year ahead of schedule. The country already sold a EUR 0.1bn 6-year private placement in April, but the plans for a new bond issue are another clear illustration of how strong the demand for pick up continues to be.
More ECB speeches, not much more on the agenda
Today’s calendar looks very light. The ECB’s Nowotny will speak at 9:30 CET, Hansson at 10:00 CET and Mersch at 10:15 CET, while Mr Draghi will meet Chancellor Merkel at 11:00 CET.
More action on the auction front
Plenty more action will take place in terms of bond auctions today. Germany will tap its 2-year benchmark for EUR 4bn, while Portugal will re-open its February 2024 bond for EUR 0.5 to 0.75bn. US auctions, in turn, will continue with USD 21bn of 10-year notes.
Nordea