Markets
European PMIs beat expectations by a landslide. The European manufacturing gauge reached a record high at 62.4, owing Germany (66.6, also a record) to a large extent. The services PMI still printed in contraction territory (48.8) but the gap is narrowing. The composite indicator suggests economic growth (52.5) for the first time since September. Details from Germany and France showed the manufacturing sector is still strongly outperforming with new (exports) orders surging and backlogs rising to record levels in Germany. Hiring in the manufacturing sector continues (even in Germany, for the first time in more than 2 years) as well as in services. Most other subseries (new orders, backlogs) in the latter still suffer from social distancing measures but slowly recover from the second lockdown introduced at the end of last year. Input prices continue to rise to the highest level in about a decade and that is also slowly filtering through to prices charged to consumers, the PMIs showed. Markets responded stoic. They consider today’s reading already outdated after Germany extended its lockdown regime to mid-April just yesterday. France announced similar measures for some regions end of last week and other European countries are likely to follow (see also below) as a new coronavirus wave engulfs the bloc. German Bunds gapped higher at the opening, following the Asian risk-off repositioning but started topping out in choppy trading soon thereafter. German yields eventually trade almost unchanged across the curve except for the very long end (30yr, -1.4 bps). US data came in mixed with strong March PMI’s but disappointing February durable goods orders (-1.1% vs. +0.5% expected). The latter is at least partially affected by bad weather conditions however. US yields completely recovered from their morning dip. The curve now bear steepens with yields up 1.1 bp (5-yr) to 2 bps (10-yr) ahead of tonight’s 5-yr auction (and 7-yr tomorrow). EUR/USD (1.182) drifted further south towards the 1.18 barrier. The couple tried to escape from breaking below 1.1836 after the PMI release but that proved premature.
Sterling had a lot to digest today. UK February CPI printed lower than foreseen with both headline and core inflation unexpectedly slowing to 0.4% y/y (0.8% expected) and 0.9% y/y (1.4%) respectively. Blow-out PMIs provided some counterweight to the pound shortly after though. The composite PMI surged from 49.6 to 56.6, driven by both the manufacturing (from 55.1 to 57.9) and the services sector (from 49.5 to 56.8). Unlike the euro zone, the UK is thanks to its vaccination campaign better equipped against a next corona wave should it reach to the British mainland. These strong March PMIs thus don’t need to be a one-off. Nevertheless, the pound didn’t really profit. EUR/GBP remains north of 0.86(2), close to opening levels. This suggest sterling in general might be in for a breather after its recent performance.
News Headlines
Brent crude gets some reprieve today, rebounding from around $60/b to $62.5/b after container ship “Ever Given” ran aground in the southern part of the Suez Canal. The giant vessel blocks all traffic across the much used canal and comes at a time when internal supply chains are already extremely stretched because of the Covid-crisis. A first attempt to dislodge the ship failed. It’s unclear when traffic will be able to resume as normal.
In an effort to break the third corona wave, the Belgian government decided to reintroduce strict lockdown measures. Schools will no longer welcome students in-person starting Monday, with the government hoping to undo the ruling after the Easter break. Other measures include limited access to non-essential business and reducing the maximum number of adults allowed to gather outdoors from 10 to 4. Mandatory teleworking and a ban on non-essential travel remain in place.
