Smiles all around at the ECB today after PMIs from the euro zone indicate a solid upswing in manufacturing and services activity, led by star-pupil Germany. EZ flash composite PMIs rose to 51.7 from 50.5 on the month, expanding at a modest pace, better than market forecasts. Encouragingly, the report is consistent with the expansion of growth in the Q2 across the euro area. Price-action update: typical risk-on tone noted; equities, commodities back in favour; FTSE100 is up 52 points, the DAX is higher by 93 points and EuroStox50 is up 32 points. In commodities, gold pares losses to trade up a buck and oil prices stabilise. In the FX space, USD still well bid but euro currency gets a leg up thanks to the stronger PMIs. Safe-haven core government bonds fall out of favour on pro-risk price-action; German bunds and UK gilts off over 60 ticks and 40 ticks respectively. That said, yields still elevated – German 10-year bund yield rises to 1.93%, its highest level since March 2012. The US 10-year Treasury yields still sitting at two-year highs. Big sigh of relief for Draghi and Co who now have an even greater excuse to hold back from adjusting monetary policies as growth appears to be on board. ECB forecasted an improvement in the euro zone economy by the latter half of 2013 so today’s figures are fulfilling policymakers’ expectations in Frankfurt and Brussels. On top of that, calm in euro area peripherals with little fresh noises on the political and fiscal front add to the current market optimism that worse of the crisis is over in the euro zone. Before the euro zone data, sentiment improved on the back of PMI data out of China which indicate the world’s second largest economy’s manufacturing sector rebounded in August, up to 50.1 from 47.7 in July. The report compiled by HSBC was consistent with the other data out of China in recent week which point to an upswing in economic activity. Hopes that China is getting up from its knees have grown in recent days and the timing couldn’t be better given the Fed tapering fears gripping the market. Inconclusive FOMC meeting minutes released Wednesday do not detract from the notion across global markets that the central bank could initiate the tapering process at the September policy meeting. FOMC members appeared to be more unified than previous on the QE-exit strategy, comfortable that tapering should start in 2013 but were still divided on what date to kick off the process; September or December. That leaves us no wiser than before the FOMC meeting minutes as we were looking for more concrete information on timeframe, rather than how united FOMC members were given all the pro-tapering Fedspeak we have had to listen to over the past month. Later in the session, US jobless claims will steal the spotlight as investors attempt to glean fresh information about the labour market which may go some way in wising them up to get ahead of the Fed. ________________________________________ Ishaq Siddiqi Market Strategist
Posted on: Thu, 22 Aug 2013 09:20:07 +0000
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