The focus for global trading was expected to shift from the Coronavirus to the data today. After a risk-off mindset earlier this week, European investors embraced the assessment of the WHO that Corona was no global emergency yet. Equities opened with gains of 1%+. The moves in core bonds and FX were again more moderate than equities. EUR/USD continued to struggle and core EMU yields rose only marginally. The EMU PMI’s failed to amend this pattern. The EMU composite PMI stabilized at 50.9 (vs 51.2) expected, suggesting rather mediocre EMU growth at the start of the year. Germany clearly beat market expectations (manufacturing 45.2 from 43.7; services 54.2 from 52.9). The German performance also filtered through in the EMU manufacturing index (47.8). However, the contribution of Europe ex-Germany remained uninspiring. This was also visible in the market reaction. The tentative raise in core EMU yields at the open stalled. German yields currently hover around unchanged levels. The US yield curve even shows marginal bull flattening despite a continuation of the rebound on the equity markets (30-y -1.5 bps). 10-y intra-EMU spreads versus Germany are also little changed. Greece slightly outperforms. The euro is still fighting an uphill battle. EUR/USD slipped below 1.1066 support yesterday. The pair needed a clear positive surprise to reverse the negative technical set-up. However, the PMI’s failed to deliver. EUR/USD is currently trading in the 1.1035 area. The combination of a global equity rebound, but little support for core yields is a bit of a mixed bag for USD/JPY trading. The pair rebounded modestly this morning, but the move lacks momentum. The pair currently trades in the 109.55 area.

Today’s UK PMI was one of the last important data before next week’s BoE policy decision. Contrary to most other data published last week and this week (except for the CBI data), the PMI’s are more timely/forward looking in nature, giving them more weight than indictors referring mostly to the period before the December election. The PMI’s suggest that the UK economy potentially turned a corner after the election. The composite PMI rebounded to 52.4, the highest level since September 2018. Both manufacturing (49.8) and services (52.9) beat market expectations. Over the previous days, sterling enjoyed a positive momentum, probably as markets anticipated better UK growth in the near future. Today’s PMI questions the need for immediate BoE action. The market now sees about an equal chance of a rate cut and an unchanged decision next week. In theory, this could have supported the sterling positive momentum. Sterling spiked higher upon the PMI release, but returned the gains almost immediately. EUR/GBP is trading in the 0.8430 area, little changed compare to yesterday’s close.

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News Headlines:

US Treasury Secretary Mnuchin disclosed he sees the Treasury’s new 20-year bond extending “slightly” the average maturity of government debt. He declared the issuance of ultra-long bonds is not on the Treasury’s agenda in the near term as the department aspires to curb the cost of financing a budget deficit set to reach $1 trillion in 2020.

Confidence among Belgian consumers and businesses picked up in January.  Consumer confidence recovered to -6 in January following December’s decline as the macroeconomic picture improved and unemployment concerns receded. Business confidence reached a 10-month high of -2 with businesses citing considerably more favourable business activity and an upbeat outlook for demand.

OPEC is contemplating prolonging its oil output-cuts to the end of the year with talks at a preliminary stage, Tass reported. According to the unidentified source, conditions of the deal may be reviewed in June while the organization is unlikely to relax output quotas in March given increased market concerns of subdued oil demand.


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