Equity markets boosted by risk on mood
Equity indices are heading higher out of the blocks in Europe at the start of the new week and the new month after a dismal end to February. Vaccine optimism, a calmer tone in the bond markets and a return of the US Covid stimulus bill to the spotlight are all helping to underpin the risk on mood, in addition to upbeat manufacturing PMIs in Europe. As a result, riskier assets such as stocks are firmly in demand.
The manufacturing sector in Europe continued to expand last month ahead of forecasts. In the UK the manufacturing PMI ticked higher to 55.1, up from the three-month low of 54.1 in January and ahead of the flash estimate of 54.9. Although the improved headline figure concealed a more sinister truth that the biggest contributor to the headline figure was the near-record increase in supplier delivery times.
Meanwhile, in Europe, the manufacturing PMI hit 57.9 in February, up from 57.7 and one of the highest readings ever. The manufacturing sector has been booming through the pandemic particularly in Germany, which saw expansion in the sector continue at impressive levels. Factories in the Eurozone are positively buzzing of the back of soaring demand.
Elsewhere a sense of calm has extended over the bond markets offering support to risk sentiment after last week’s bond market rout roiled the financial markets resulting in steep losses for most global indices.
Bond yields have stabilised, at least for now, in the US and across Europe. Yields on the US 10 year treasury are back around 1.40% after spiking to a pre-pandemic high of 1.60% last week. It’s highly unlikely this marks the end to bond market carnage; however, it’s a well-received respite at the least.
Supporting the mood in the market is progress of the Biden administration’s huge US stimulus package, which was voted through the House of Representatives over the weekend and now heads to the Senate.
The approval of the Johnson & Johnson one-shot covid vaccine has the potential to speed up the vaccine rollout program considerably.
FX – Euro falters despite surging manufacturing demand
In the FX markets GBP has only edged higher despite the better than forecast PMI numbers. This has enabled the FTSE to have a free reign surging higher.
The euro is less than impressed with the roaring manufacturing activity in the region and trades firmly on the back foot sub USD1.21. Attention will now shift towards German inflation data due later today. Expectations are for an increase in annual CPI to 1.2%, up from 1%. An upbeat reading could provide further support to the euro.
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