- EU sovereign markets continue to stabilise after the Italian elections.
- US equity markets declined as US Senate rejects plan to replace Sequester despite stronger-than-expected economic data.
- Asian equity markets (apart from Japan) follow the trend from the US as Chinese manufacturing PMIs decline. In Japan , CPI data shows deflation is very real, as consumer prices declined for the third month and the market expects more stimulus from BoJ. Markets overnight
US equity markets declined late Thursday after a Senate vote kept USD85bn of automatic spending cuts in place. The Senate rejected a pair of partisan proposals to replace USD85bn in automatic spending cuts. The Sequester will start today even though the Office of Management and Budget will have until midnight to deliver the official order.
The S&P 500 declined 0.1% after having being up 0.6% earlier on Thursday on the back of better-than-expected data for durable goods orders and Chicago PMI. Dow Jones declined 0.2% at the close on Thursday.
US bond yields declined on the back of index extensions, given that the Sequester begins today. 10Y bonds yields declined by 3bp while 2Y yields declined by 1bp.
In Asia, the equity markets (apart from Japan) followed the trend from the US with equity indices as US spending cuts are set to begin and Chinese manufacturing growth slowed. Both the official manufacturing PMI and the HSBC index fell in February. The official PMI fell to 50.1 in February from 50.4 while the HSBC manufacturing PMI fell to 50.4 from 52.3, indicating a slowdown, although part of the decline is attributed to the Chinese new year.
In Japan the Nikkei 225 gained 0.5% after the CPI data for January fell for a third month. Hence, markets expect that the Bank of Japan will add to stimulus measures as deflation continues.
In the FX markets there have been few movements. This morning EUR/USD is trading at the 1.3075 level, which is more or less unchanged from yesterday. The EUR/JPY pair is trading at the 121 level – also unchanged from yesterday.
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