- Chinese HSBC manufacturing PMI improved slightly for the third month in a row
- Talks between Iran and IEAE have failed to ease tensions as Iran has denied IEAE access to a suspected nuclear-related military base
- USD/JPY traded above 80 in the early morning hours for the first time since August.
The flash estimate for the Chinese HSBC manufacturing PMI in February improved from 48.8 to 49.7 in January, but details were slightly weak. New orders in February were unchanged at 49.1, but the drop in export orders from 50.4 to 47.5 is a concern. The data suggest that China’s GDP growth is improving, but will remain below trend in Q1. With an improvement for the third month in a row it appears that the risk of a hard landing scenario for the Chinese economy is diminishing. Hence, monetary easing in China will continue to be cautious.
The International Atomic Energy Agency, IEAE, said this morning that Iran did not accept its request to visit a suspected nuclear-related military base. The talks with Iran, which have been going on for two days, have thus failed to ease tensions. Oil prices increased to a nine-month high on Iran supply worries earlier in the session, but then declined half a percent on concerns that high commodity prices will curb global demand.
In Greece the Collective Action Clause bill has been passed on to Parliament and will be voted upon tomorrow. The introduction of CACs means that Greece will almost certainly be downgraded to selective default by rating agencies. The Greek Finance Minister Evangeliz Venizelos said that PSI will reduce debt by 110bn, i.e. slightly more than previously anticipated.
Bank of England’s deputy governor Charles Bean said that the UK is in for a moderate recovery later this year as falling inflation eases the squeeze on household incomes. The equity markets saw Dow briefly above 13000 for the first time since May 2008 before retrenching later in the US session, pulled down by concerns about higher oil prices. Dow and S&P500 ended the session up just 0.1%. The Nikkei index edged notably higher after meeting resistance at 9500.
US bond yields have been lifted slightly and the curve has steepened a bit following the approval of the second rescue package for Greece and a subsequent shift in focus towards the improving growth outlook. A two-year note issued yesterday sold USD35bn at 0.31%. The yield was the highest since the July 2011 auction.
In the FX markets USD/JPY traded above 80 in early morning hours for the first time since August and is currently trading just below that level reflecting better US data and the Japanese central bank’s planned asset purchases. The euro weakened slightly overnight and EUR/USD temporarily traded below 1.322. Scandinavian currencies and GBP have strengthened slightly overnight.
Global Daily
Focus today: After a deal on the Greek bailout package was reached yesterday, focus will return to economic data with particular attention on the flash estimate for the manufacturing PMI for the euro area. We expect a marginal improvement in the composite PMI for the euro area as a whole from 50.4 to 50.5. The improvement in China’s HSBC manufacturing PMI (released this morning) in February suggests that the improvement in the global manufacturing cycle remains intact although the decline in export orders is a concern. In The US existing home sales will be released this afternoon and - in line with recent housing data - are expected to show another improvement. Finally Bank of England will release minutes from its last monetary meeting.
Fixed income markets: Yesterday the markets reacted positively, but with caution, to the Greek debt deal as investors are wary that a huge task lies ahead for the Greeks in terms of implementation. However, if progress is made according to plan in the coming months and the macro recovery continues, this should pave the way for rising long rates in line with our expectations. Today the markets will keep an eye on the European PMIs, where another rise would boost sentiment and add some upward pressure to bond yields. There is a lot of bond supply today. Sweden is exchanging SEK5bn in the 10yr segment (selling
’22 vs. buying ’19 bonds). Germany is selling EUR5bn 2-year Schatz and the US is selling USD35bn 5-year notes. Yesterday’s US 2yr auction was received with decent results. Again today, a lot of earnings reports are due. Among the interesting are Toll Brothers Inc., Hewlett Packard Co. and France Telecom SA.
FX markets: Does the Greek bailout remove tail-risks to the euro? We don’t think so, but the bailout does reduce euro tail-risks, which were already significantly reduced by the introduction of ECB’s 3Y LTRO. Together with the recent stabilization in global macro data this is likely to keep EUR/USD in the 1.30s and sustain broad-based pressure on the dollar. We expect EUR/USD to trade within a 1.3050-1.3450 range in the short term and have a 1.32 3M forecast. However, the fact that short EUR positions remain stretched according to the IMM data does leave potential for an earlier-than-expected move towards our 1.36 12M forecast.