Eurozone PMIs to continue its upward trend

Market movers today

• For the euro area we expect PMIs to continue to trend upwards, signalling stronger economic activity. For PMI manufacturing, the order-inventory balance strengthened in March and the weaker currency is still expected to support the manufacturing sector. PMI services has also strengthened in recent months and the strong increase in private consumption supports a further rise.

• In the US the Markit manufacturing PMI remains at an elevated level and has improved in the past two months contrary to other data related to the manufacturing sector. Hence it could be time for a correction lower in the index but the extent of the decline will be important as it gives an indication of the severity of the soft patch.

• We expect UK retail sales excluding fuels to have increased 1.3% m/m in March. Private consumption is supported by the very high consumer confidence (currently at the highest level post-crisis), positive real wage growth for the first time since 2009 and increasing employment.

• Later in the afternoon we will get data for US new home sales and jobless claims. Recent housing data suggest that US housing market activity is picking up. However, after the spike in new home sales in February, we look for a decline of 3% m/m in March, which is still better than consensus expectations. Initial jobless claims will give more information on the state of the labour market in April. The current level of claims suggests a rebound in payrolls in April and if claims continue to trend lower, it will add further confidence to our call that the Fed will hike in September.

• There are no key movers in Scandi today.

Selected market news

China HSBC Flash PMI for April disappointed as it slipped further to 49.2 (consensus 49.6) from 49.6 last month. It adds to the expectation of more policy easing and did not ruin sentiment in stock markets where most indices are higher in Asia this morning.

The pattern of a bottom in the US surprise index and a peak in the euro surprise index continued yesterday. Euro consumer confidence in April fell slightly, while data on US existing home US FHFA house prices surprised to the upside. We believe a closing of the big gap in the surprise indices between US and the euro area is likely to continue in coming months, as US growth recovers while Euro data will find it harder to beat increasingly high expectations.

Peripheral bond markets performed strongly yesterday as the fears over an imminent Greek default eased further. While a deal with the EU is unlikely this week, Reuters ran a story that Greece can scrape together enough cash to make it till June. In contrast, core bond yields moved sharply higher in a curve steepening move where German 30-year yields rose 8bp during the afternoon. US yields also saw increases but have eased a bit overnight.