Dhaka, Bangladesh
Euro zone bond yields inch up, focus turns to PMI data

Euro zone bond yields inch up, focus turns to PMI data

LONDON, Jan 24: Euro zone bond yields edged up from multi-week lows on Friday, as focus turned to the release of key business activity data for the latest clues to the economic outlook, reports Reuters. News that the World Health Organisation has declared the new coronavirus an emergency for China but stopped short of declaring it an epidemic of international concern appeared to bring some calm to world markets. On Thursday, yields across the bloc fell sharply as fears of the flu-like virus rattled world markets, while European Central Bank President Christine Lagarde said that risks to the euro zone economy remain tilted towards the downside. In early trade, yields on higher-rated bonds were up 1-2 basis points on the day. Germany’s benchmark 10-year Bund yield was up around 1.5 bps at -0.29 per cent, above a six-week low hit on Thursday at around -0.31 per cent. France’s 10-year bond yield, which fell decisively back below 0 per cent this week, was 2 bps higher at -0.05 per cent. The purchasing managers’ index (PMI) — widely viewed as a forward-looking indicator of growth is released this session. Britain’s January PMI index is also in focus as investors assess whether or not the Bank of England will cut rates at next week’s policy meeting. In Italy, 10-year bond yields were up 1.5 bps at 1.27 per cent , having tumbled to their lowest levels since mid-November on Thursday. They are down 12 bps this week and set for the biggest weekly falls in six weeks as investors brush aside near-term political risks. A regional election this weekend in Emilia Romagna sees the right-wing League threatening to end 75 years of uninterrupted rule by the Democratic Party (PD) — a member of the ruling coalition. A strong showing for the League could further underscore the frailty of the coalition government, which this week took a hit after Luigi Di Maio, leader of the co-ruling 5-Star Movement, stepped down. Analysts say that even a strong showing for the League in regional elections was unlikely to lead to the collapse of the government with the two ruling parties unlikely to want to face fresh elections. “The risk of losing national elections to right-wing Matteo Salvini is the glue that keeps the coalition together,” analysts at Berenberg said, referring to the League’s leader. “Luigi di Maio’s resignation as leader of 5-Star may make the party even more eager to cling on to power in order to avoid a potentially disastrous defeat in snap elections.” But the business activity remained lacklustre at the start of the year, a survey showed a day after the European Central Bank said the manufacturing sector remained a drag on the economy, but there were some glimmers of hope for policymakers. ECB rate-setters did not make any policy change on Thursday, standing by their pledge to keep buying bonds and, if needed, cut interest rates until price growth in the euro zone heads back to their goal. Still, the slowdown in euro zone economic activity has probably bottomed out, according to a Reuters poll last week, which showed while the outlook for growth and inflation remained lukewarm the chances of a recession have faded. That outlook was somewhat supported by IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, which held at 50.9 in January but missed the median prediction in a Reuters poll for 51.2. Anything above 50 indicates growth. “The unchanged reading for the euro zone’s Composite PMI in January leaves it still consistent with fairly slow GDP growth,” said Jack Allen-Reynolds at Capital Economics. Following Friday’s PMI, the euro continued to languish near a seven-week low after the ECB’s more dovish tone at Thursday’s meeting than some had expected. An earlier PMI from Germany, Europe’s largest economy, showed the private sector gained momentum as growth in services activity picked up and the pullback in manufacturing eased. French activity expanded at a weaker pace as nationwide strikes weighed and IHS Markit cautioned growth outside of Germany and France slowed to a six-and-a-half year low. Britain’s performance bettered the euro zone’s for the first time since December 2018, a separate PMI showed, the strongest evidence yet of a post-election boost to the economy that could deter the Bank of England from cutting interest rates next week. [GB/PMIS] The euro zone’s headline index was bogged down by a still struggling factory industry. The manufacturing PMI marked the 12th month below the break-even mark, registering 47.8 - albeit an improvement on December’s 46.3 and well above the Reuters poll’s 46.8. An index measuring output, which feeds into the composite PMI, rose to 47.5 from 46.1, its highest since August. While most forward-looking indicators in the manufacturing PMI remained in negative territory, they were moving in the right direction. The new orders, employment, backlogs of work and quantity of purchases indexes were all still sub-50 but did rise.

Share |