The Day So Far
In the words of IHS Markit, who are responsible for the PMI data this morning, “Eurozone upturn steps up a gear as growth approaches six year high”. Further more job creation was seen at its best in 9.5-yrs in today’s report with order book growth picking up and business optimism moving higher. One could be forgiven then for thinking why the fuss over European elections when underlying economic performance remains robust and is in fact improving. This then may help explain the explosive move seen higher in the DAX this morning which no doubt was assisted in part by a triggering of stops on the ascent. In addition following yesterday’s Eurogroup meeting, Greek two-year bond yields have also backed off recent highs with some encouraging noises coming out of Brussels in regards to the much needed cash injection for the ailing nation.
Despite these positive developments the EUR continues to come under pressure with yet more hawkish comments from the Fed overnight (Harker stating March hike is an option) in comparison with the recent narrowing in French election odds following a poll yesterday from OpinionWay which showed National Front’s Le Pen gaining some traction. The latter has been weighing on the mind of fixed income participants with the FR/GE 10-yr spread widening to a fresh post-eurozone crisis high on Monday with the gap exceeding 0.81% for the first time since August 2012, while 3-month implied volatility has stepped up in the EUR/USD pair reflecting the growing uneasiness over the situation.
The Day Ahead
Looking forward we have a positive outlook on the session ahead given the fundamentals at play and our directional bias on the four assets we look at today will be a familiar theme for any of our regular readers.
Nothing has happened to alter our outlook for US equities which remain close to record levels and given the speed of the rise in combination with the break of the February 10th highs in WTI crude we also feel bullish in that asset. As a consequence, we anticipate yields in the US to creep up with the USD maintaining the strength which has occurred throughout the morning already.
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