- Negative sentiment in Europe deteriorated further yesterday and carried over to US equities. A poor US PMI release and weak Richmond Fed manufacturing data pointed to downside risks to next week’s ISM and fuelled the risk-off move further. The S&P500 ended the trade down by 0.9% and the future has decreased further in Asian trading. In Asia, stock indices are trading in negative territory this morning. Hang Seng is down by 0.3% and Nikkei by 1.0%.
- US bond yields in longer maturities closed at new lows as the flight to safe havens continues. The 10-year US Treasury ended the session around 1.39%. In FX markets, the EUR/USD has remained below 1.21 overnight.
- The German and Spanish finance ministers released a joint statement after their meeting yesterday in which they stated “The current levels of interest rates on sovereign debt markets don’t correspond to the fundamentals of the Spanish economy”. The leaders emphasised that the bank bailout in Spain should be implemented quickly. The statement did not say anything about a potential intervention in the sovereign bond market, see Bloomberg.
- Focus today will continue to centre on the situation in Spain. Spanish yields hit new highs yesterday with the 10Y closing around 7.5%. Speculation on how far we are from EFSF/ESM or ECB intervention is likely to continue. Today the Spanish finance minister will meet with his French counterpart in Paris.
- In the European session, the main data releases will be German Ifo data, where the forward-looking expectations component is expected to drop to the lowest level in almost three years. We expect Germany to have avoided recession in Q2 but that it is heading for negative GDP growth in Q3. This is line with the drop in German manufacturing PMI released yesterday (see also WSJ and PMIs signal further deterioration in Q3). Also the ECB’s Quarterly Bank Lending Survey is worth keeping an eye on today. The first release of Q2 GDP in the UK could attract some attention but given the negative consensus expectation and the fact that we just had another round of QE the release is likely to have limited market impact.
- There are no market events in Scandinavia today.
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