Eurozone in Focus as Political Risks Heightened; Greek Debt Concerns Rekindled
With the US market closed on President Day’s holiday, the focus turned to Europe. French bonds remained under pressure, sending yields higher, on heightened concerns over Frexit 10-year French yields rose +7 bps higher to a 1.5 week high of 1.14%. Meanwhile, the 10-year French-German yield spread soared to 0.77% at close. Greek yield pulled back modestly as the country on Monday agreed to discuss new bailout reforms as the IME/EU officials returned for progress on releasing next tranche of funds. The euro has remained pressured with EURUSD falling to a 4-day low of 1.0575 at the time of writing this note. European shares, however, climbed higher with the broad Stoxx 600 index adding +0.22% for the day.
The RBA minutes for the February meeting unveiled that policymakers sought to leave rates lower for longer. Meanwhile, the central bank believed rising exports of iron ore would contribute significantly to Australian economic growth. As noted in the minutes, “Australia’s low-cost producers of iron ore were expected to increase output further and the ramp-up in liquefied natural gas production was expected to make a significant contribution to output growth”.
In the Eurozone, OpinionWay poll for the upcoming French election showed that first round support for far right presidential candidate Marine Le Pen added +1% to 27% while that for Emmanuel Macron and Francois Fillion stayed were unchanged at 20%. Separately, as officials from the European commission, ECB, EU and IMF are returning to Greece, for the sake of releasing the next tranche of bailout fund, to inspect the country’s progress on reforms to tax, pensions and labour markets, Prime Minister Alexis Tsipras’s government agreed to discussions on big economic reforms in exchange for the release of the funds. Europe also signaled reducing some of the austerity measures for the country. Yet, according to Jeroen Dijsselbloem, the Dutch finance minister who chairs the Eurogroup, it was too early to make a decision on unlocking the next tranche of fund worth of 86B euro.
The dataflow was limited. In the UK, CBI’s Industrial Trends Survey showed that “demand for UK-manufactured goods strengthened in the three months to February, with total order books improving further”. 27% of businesses reported total orders were above normal while the 19% that said orders were below normal, sending the balance of total orders higher to +8 during the survey period, compared with +5 previously. This also marks the highest balance since February 2015. The output expectations diffusion index soared +7 points to 33, while the diffusion index for firms expecting selling prices to rise gained +4 points to 32, the highest reading since April 2011. In the Eurozone, European Commission’s flash consumer confidence index dropped -1.4 points to -6.2 in February. German PPI accelerated to +0.7% m/m in January from December’s +0.4%. From a year ago, PPI rose to +2.4% y/y from +1% in the prior month. Both readings exceeded market expectations.
Today, the preliminary manufacturing PMI for US probably added +0.2 point to 55.2 in February, while the services PMI also gained +0.2 point to 55.8 for the month. Manufacturing and services PMIs for European countries would also be released today.
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Eurozone in Focus as Political Risks Heightened; Greek Debt Concerns Rekindled
