July 24, 2019 | SQUARED DIRECT - Tomorrow, Thursday 25th of July, is the next ECB monetary policy meeting. The markets are expecting that the release of eurozone manufacturing & services data will determine the outcome of the meeting and the subsequent course of action of the ECB. In anticipation of the economic data releases and the ECB meeting, eurozone bond yields are rising.
Is Germany undergoing a recession in manufacturing?
Analysts expect that eurozone PMIs will indicate whether its largest economy, Germany, is undergoing a recession in manufacturing that will, in turn, affect the services sector. Considering this, many expect the ECB to resume its quantitative easing program with some forecasting a 40% chance of a 10-basis-point rate cut.
A Reuters Poll is forecasting a eurozone services PMI reading of 53.3 and eurozone manufacturing PMI reading of 47.6. It must be noted that any reading under 50 indicates contraction and anything above 50 indicates growth. The International Monetary Fund has recently cut its forecasts on global growth for this and the next year but kept eurozone growth forecasts steady and upped them for next year. However, it slightly trimmed both its German growth forecast for 2019 and it's Italian 2020 expansion forecast by 0.1%.
Other eurozone bond yield influences which currently concern investors are British, Italian and Spanish politics. Market expectations of a hard Brexit rose significantly after Boris Johnson was elected prime minister with Mr. Johnson vouching to get Britain out of the EU by the 31st of October with or without a deal.
In Italy, the coalition government is facing serious issues, with rumors of a meeting between leaders Luigi Di Maio and Matteo Salvini being prepared to find a resolution to the problems. Italian government bond yields for 10-year debt stayed flat at 1.60%.
In Spain, Pedro Sanchez was unable to win the majority vote for Prime Minister despite winning the most seats in April’s election and must form a difficult coalition with Podemos to be confirmed as Prime Minister. Spanish Bond yields have fallen over 100 basis points this year, but 10-year bond yields were at 0.40% in today’s early trading.
Other eurozone government bond yields:
- Greek 10-year-bond yields are at 2.7%
- Portuguese 10-year-Bond yields are at 0.5%
- Irish 10-year-bond yields dropped at -0.2%
- German 10-year-benchmark dropped at -0.38%
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