The past week offered a bit more encouraging news on the macro front, which suggests that we may indeed be moving slowly away from the abyss. Starting in the US both existing home sales, house prices and durable goods orders delivered positive surprises. The regional business survey from Richmond also showed a marked increase which may be a pre-warning of a more marked turnaround in ISM soon. Other regional surveys have delivered a more mixed message, though, which means the rise in Richmond should be taken with a grain of salt. But overall the signs are well in line with our expectation of a recovery in ISM over the next 3-6 months as inventories have reached very low levels and demand is starting to improve slowly.
Even in Euroland Flash PMI for March surprised to the upside as it managed to rise. The most encouraging point was a quite strong rise in the order-inventory balance which tends to lead actual production. The ifo expectations index - another good leading indicator - also rose for the third month in a row. Next week PMI data is released globally and we will follow up on these in our Monitor: Global Business Cycle Watch.
As data improves it will become more tricky for central banks to do more quantitative easing. We still think the situation is dire enough for ECB to deliver a 50bp cut next week and also see a likelihood of some kind of "credit easing" in May or June. But the window for further easing will likely close during the summer months. Since easing from central banks has been a key factor for the low government bond yields, it will put more up-ward pressure on bond yields if central banks start to signal that they will step to the sideline to see how the stimulus works through the economy. Not least given the still very heavy supply coming to the market which may find it more difficult to find a home.
Even in Euroland Flash PMI for March surprised to the upside as it managed to rise. The most encouraging point was a quite strong rise in the order-inventory balance which tends to lead actual production. The ifo expectations index - another good leading indicator - also rose for the third month in a row. Next week PMI data is released globally and we will follow up on these in our Monitor: Global Business Cycle Watch.
As data improves it will become more tricky for central banks to do more quantitative easing. We still think the situation is dire enough for ECB to deliver a 50bp cut next week and also see a likelihood of some kind of "credit easing" in May or June. But the window for further easing will likely close during the summer months. Since easing from central banks has been a key factor for the low government bond yields, it will put more up-ward pressure on bond yields if central banks start to signal that they will step to the sideline to see how the stimulus works through the economy. Not least given the still very heavy supply coming to the market which may find it more difficult to find a home.
