Corona remains a key driver for global trading. However markets often focus on different aspects of the process.  Earlier this week, investors drew comfort from (Chinese) authorities committing to monetary (and if necessary fiscal) measures to mitigate the fallout on the economy. This morning, market shifted attention to the economic impact outside China, in particular in Japan and even more in South Korea. Most markets outside China started with a risk-off bias. In Europe, investors looked how corona would affect February PMI business confidence. Remembering the sensitivity of the EMU economy for disruptions in supply chains from China last year, EMU investors feared quite a big hit from corona, keeping European yields and the euro under pressure going into the PMI release. At first sight, the EMU PMI’s printed constructive. The EMU composite PMI rose from 51.3 to 51.6 (51.0 expected). Both services (52.8) and manufacturing (49.1) unexpectedly improved. Markit indicated that the outcome pointed to a quarterly growth of 0.2%. However, there was a ‘statistical BUT’. Strength in the manufacturing measure was for a big part due to a lengthening of delivery times. In ‘normal times’, this suggests that companies need more time to meet rising demand. In the ‘corona era’ this might point to delivery delays due to disturbance in transportation, quite a less favorable interpretation. German/EMU yields reversed most of the pre-publication decline, but the ‘rebound’ stayed cautious as the details question the sustainability of today’s PMI-beat. German yields currently show changes of about 1 bp across the curve. 10-y yields spread changes versus Germany  also show no significant moves. US PMI’s published a little later, usually of secondary importance, fell well below expectations. Especially the services series disappointed strongly (49.4), triggering a knee-jerk upleg in US Treasuries, which already outperformed Bunds throughout the day with yields declining between 5 bps (2-y) and 7 bps (30-y, new all-time low). The European PMI’s didn’t change the (fragile) picture of EUR/USD in any profound way. The pair rebounded from the 1.0790 area tot the 1.0820 area on the first ‘positive’ headlines of the French and German PMI’s but soon returned to the 1.08 area. The US release however eventually pushes the pair higher towards 1.084 at the time of writing. The USD/JPY rally took a breather. The pair hovered near the 111.50/112.20 range, with the 112.23/40 resistance still within reach.

Sterling confirmed the shift in trading dynamics that was already visible since Tuesday. The UK PMI’s printed stronger than expected with the composite PMI holding the last months sharp rebound (53.3 unchanged vs 52.8 expected). The manufacturing PMI even unexpectedly rebounded further (51.9 from 50.0, 49.7 expected). However, markets again doubt whether this rebound will be sustainable if corona continues to spread. In line with the price action yesterday and on Wednesday, sterling profited only marginally from positive PMI headlines. EUR/GBP is trading in the 0.8360 area. The 0.8276 post-election low is confirmed as a strong sterling resistance.

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News Headlines

EU leaders are deadlocked in talks on agreeing an EU budget for the 2021-2027 period. Danish PM Frederiksen even hit that another Summit will be needed. The main stumbling block is the budget spending ceiling which is currently capped at 1% of the EU’s income. Most countries – on the net receiving end – want it to be lifted to 1.1%-1.3%. Countries on the net paying end (based on genuine economic strength) try to temper expectations and tremble at the thought that the EU might touch on their rebates in order to fill the €60bn gap left by the UK’s departure.

Belgian business confidence declined more or less expected from a 10-month high in January (-2 ) to -2.7 in February. It was the first retreat since August. The business climate has weakened in the business sector (3.2 from 7.8) and the manufacturing industry (-5.5 from -4.9) while improving in retail trade (-1.4 from -6.3) and the building industry (3.1 from 2.2). The overall underlying cyclical trade remains positive.


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