Yields have inched up as risk appetite held overnight and as the thought of a Fed taper lingers. Longer dated rates are up about 1 bp to leave the 10-year at 1.634% and the 30-year at 2.342%. The wi 2-year is fractionally cheaper at 0.160%. U.S. equity futures are slightly firmer after Thursday’s rally with the Dow up 0.3%, the S&P 500 0.28% higher, while the NASDAQ has risen 0.22%. EGBs have pared earlier gains after stronger than expected PMI readings reflected a strengthening and broadening recovery.
Key Market Movers:
- U.S. data calendar has April existing home sales, flash Markit PMIs
- Canada data calendar has March retail sales – expected to rise 2.3%
- Dollar holding softening tack vs euro, yen, others, but up on dollar bloc
- Bitcoin up from lows; DB note described it as having gone from trend to “tacky”
- Gilts and FTSE 100 hit by pound strength, Bunds and DAX outperformed
- Bundesbank said the economy could reach pre-crisis levels this autumn
- UK prelim May composite PMI rose to series record 62.0 from 60.7
- Eurozone flash PMIs signaled strengthening and broadening of the recovery
- Japan flash May Composite PMI dropped back to 48.1 from 51.0
- Australia flash May Composite PMI at 2-month low of 58.1
- Japan CPI fell back to -0.4% y/y on cut in cell-phone charges
The dollar’s softening bias showed itself again, which pushed the currency to two-day lows against the euro and yen, and a three-month low in the case of the pound, which was boosted independently by a round of strong UK data. The dollar bloc rebounded from intraday weakness during the European morning, tracking a rebound in commodity prices and a risk-on sentiment in global equity markets, which was aided by solid preliminary May PMI out of Europe and with investors having re-parked any nascent concerns about inflation.
The Bundesbank also warned that German inflation could temporarily touch 4% this year, with the economy reaching pre-crisis levels in the autumn. Some of the bearish impacts were mitigated as the Bank stressed temporary factors. The Bund is 0.6 bps lower at -0.117%. The Gilt is up 1.4 bps at 0.851%. European bourses are rallying.
The DAX is up 0.22%. The FTSE has climbed off of its Asian nadir and is just modestly lower. Asia was mixed with a 0.78% gain in the Nikkei and a -1% decline in the CSI. PMIs out of Japan and Australia brought downward corrections in Composite readings, while Japan’s CPI declined to a -0.4% y/y pace from -0.2% y/y, with core readings also lower. The decline was actually less pronounced than feared and largely due to a plunge in cell phone charges. Tencent Holdings Ltd was under pressure after pledging a sharp boost in investment.
Today’s calendar is light to end the week but features April’s existing-home sales, which are expected to rise to 6.100 mln from 6.010 mln previously. Flash May Markit manufacturing and services PMIs are due as well.
Today’s earnings calendar features reports from Deere, Mitsubishi Financial, Sumitomo Mitsui, Mizuho, and Booz Allen Hamilton.