Selasa, 01 April 2008

European govt bonds drop further after surprise uptick in US ISM

Tue, Apr 1 2008, 14:55 GMT
http://www.afxnews.com

LONDON (Thomson Financial) - European government bonds slumped further after the release of the United States manufacturing ISM indicator, which showed a surprise rise in March.

The ISM inched up to 48.6 from 48.3 in February, beating analyst expectations for a drop to 48.0. New orders and production fell while employment and deliveries rebounded.

The number "shows that US statistics seem to be stabilising," said Peter Wadkins at IFR Markets.

He notes that the manufacturing ISM has historically been in the lower 40s before the US economy was officially declared in a recession, so a levelling out at the current level -- even though it denotes contraction in activity as it remains below the 50 mark -- is a positive signal.

Adding to the momentum, US construction spending in February fell by only 0.3 percent, not as bad as the consensus for a 1.1 percent decline.

The figures weighed on bond prices, which had been sliding all day before the data.

A management reshuffle and re-capitalisation at Swiss bank UBS after it wrote-down $19 billion in subprime-related losses was a cause for optimism in the market. Bank stocks rallied on the hope that the new financial quarter that starts today may begin on a note of more transparency, and that the worst of write-downs is now behind them.

European government bonds are also generally under pressure on the widespread view that the European Central Bank is unlikely to cut interest rates in coming months as long as inflation pressures persist.

The euro zone manufacturing PMI this morning confirmed the small decline in the flash estimate, but there were upward revisions to the price components.

These echoed the high consumer price inflation numbers yesterday, which touched an annual rate of 3.5 percent in March -- a new series high -- from 3.3 percent in February.

Meanwhile, the euro zone unemployment data showed the labour market is weathering the financial turmoil well. The unemployment rate remained at a series low of 7.1 percent.

In the United Kingdom, gilts were also lower after the PMI for manufacturing remained unchanged from February at 51.3, beating the consensus for a drop to 51.0.

"Having been on a distinct downtrend since the autumn, the PMI appears to have found a foothold in the first quarter of 2008 -- stabilising at levels in line with its decade average," said Ross Walker at Royal Bank of Scotland.

However, rate-setters will be worried to see that the price components marked new series highs.

"It probably won't prevent a Bank rate cut in April (and if not April, then May) but is likely to limit the total amount of monetary policy loosening over the course of the year," Walker said.

At Yield Change on

1535 BST pct previous close

June euribor future (Liffe) 95.46 dn 0.04

Sept euribor future (Liffe) 95.82 dn 0.07

GERMANY

June bund future (Eurex) 115.19 dn 0.79

4.00 pct Jan 2018 govt bond 100.05 3.99 dn 0.71

FRANCE

4.25 pct Oct 2017 govt bond 100.40 4.20 dn 0.68

ITALY

4.50 pct Feb 2018 govt bond 100.74 4.45 dn 0.29

UK

June gilt future 110.45 dn 0.85

5.00 pct March 2018 govt bond 104.27 4.46 dn 0.94

June short sterling future 94.51 dn 0.04

Sept short sterling future 94.61 dn 0.06

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