The US dollar is narrowly mixed to start the new week. Both Tokyo and London markets are closed today making for somewhat lighter turnover. The dollar has been confined to about a quarter of a yen above JPY120.00.
It is the euro that stands out. It has lost almost 0.5%, has dragged the Swiss franc with it. Recall at the end of last week, the euro was fairly resilient to the US dollar’s recovery. There is a bit of catch-up going on as European dealers returned from their May Day holiday.
The euro area manufacturing PMI was in line with expectations and edged above the flash 51.9 to 52.0. In March,it stood at 52.2. Investors have already taken on board that growth has accelerated in the region. What is new is that the deflationary forces are ebbing. This was seen in the March CPI print that ended a streak of three consecutive negative year-over-year readings. The April PMI showed that manufacturers raised prices for the first time in eight months. The increase in average selling prices is not very broad, limited to Germany, Italy and Ireland, but may be the beginning of a trend. Input costs increased for the second consecutive month after falling for half a year. In Spain input prices area at their highest level since the end of 2012. In Italy, input prices are at nine month highs.
In terms of manufacturing itself, France continues to disappoint. Its manufacturing PMI slipped to 48.0 from 48.4 in the flash. It is down from 48.8 in March and a little below the Q1 average. In contrast, the German reading was revised up to 52.1 from 51.9. It stood at 52.8 in March. It is slightly above its Q1 average. Spain remains largely steady at a high level (54.2 vs 54.3). Italy offered a pleasant surprise. The manufacturing PMI rose to 53.8 from 53.3, which is the highest since last April.
Pressure is still on euro area bonds after last week’s rout. German and French 10-year yields are 3-4 bp higher. Spanish and Italian yields are 8-110 bp high. On the other hand, equity markets are higher, with the DAX leading the way, up almost 0.9%. The Dow Jones Stoxx 600 is up 0.4%, led by telecoms and energy.
