Market movers today

In the US, service and manufacturing PMIs for February are due to be released. Both PMIs are at levels indicating a tailwind for the overall economy and have furthermore been rising steadily since late summer 2016. We expect this to continue and look for an increase in both PMIs in February.

In the euro area, PMI figures from Germany, France and the euro area are also due out. Overall, we expect PMIs to see a downward correction in line with the fall across other survey indicators (IFO and ZEW expectations). In manufacturing, recent months have shown an increase in output, but the order-inventory balance indicator has weakened and points to a downward correction in manufacturing PMI. In service, we also expect a decline in line with the other survey indicators. Still, even with the expected decline in February, PMIs remain at solid levels.

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In the UK, the Article 50 marathon debate in House of Lords continues today. More than 190 members (record) will be speaking during the two-day debate: 80 yesterday and 110 today. Members of the House of Lords have proposed around 30 amendments to the bill and speeches will be monitored closely for signs of the mood among the members and whether the bill in contrast to our expectation could be delayed.

The Fed’s Harker (voter, hawkish) and Kashkari (voter, dovish) are scheduled to speak tonight. We will look for communication about the expected timing of a US rate hike. We still expect the Fed to deliver the next rate hike in June, but think risks are skewed towards an earlier rate hike.

Selected market news

Risk appetite has improved this morning and most regional Asian equity indices and USD/JPY trade higher after European equity markets closed broadly flat yesterday in a relatively uneventful day. In Japan, the manufacturing PMI rose to the highest level since March 2014 at 53.5, underscoring that the global manufacturing business cycle is still solid. Details in the PMI report were also solid with both new orders and output improving.

The tone in the Minutes from the Reserve Bank of Australia’s (RBA) monetary policy meeting on 7 February was relatively optimistic and the RBA expects GDP growth to pick up to around 3% later in 2017 and to remain above estimates of potential growth. We expect the RBA to keep its key rate unchanged in the coming 12 months and we still think the RBA wants to limit the upside in AUD and is ready to soften its tone in case the exchange rate appreciates excessively.

The European fixed income market remains in focus for investors, and French government bonds once again slumped yesterday as political uncertainty reduces investors’ appetite for exposure to France. The 10-year yield spread between France and Germany yesterday reached the widest level since 2012. Monday’s OpinionWay poll showed a 1pp gain to Marine Le Pen, who now has support from 27% of the votes in the first round. Moreover, polls suggest that Le Pen is rapidly narrowing the gap to her rivals in the second round. Hence, while Emmanuel Macron is likely to defeat Le Pen by 58% to 42% in the second round, according to the poll, his advantage has halved in less than two weeks.

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