German PMIs Mixed; Services Weakness Not As Pronounced

Germany flash PMIs for February tell a similar story to the French numbers: picked up to 60.6 from 56.5, but the weakness in was not as pronounced as it was in France. There was strong growth in export orders (3y high), while employment also increased modestly. Prices pressures were evident, with the steepest rise in factory gate input costs in almost 10 years. Unlike France, however, there were signs of pricing power, with the average charge for goods and services rising at the fastest rate since August 2019, which is just what the EU recovery doctor ordered. 

A pleasant surprise for the as traders now set sights on EUR/USD 1.2150 and with the US rates stalling at .30% in space, the USD long excitement from earlier in the week is losing steam, and there doesn’t seem much reason to fight the move just yet even if you are partial to a short term long USD view. 

Asia Wrap 

Stocks on Wall Street closed lower on Thursday as investors shifted out of big technology names, while an unexpected rise in weekly US  pointed to a fragile recovery in the labour market.

If US yields continue to move higher next week the risk rebalancing will continued focus on tech-sector valuations, which are extremely sensitive to 10-year bond yields. So for stock markets with a high-weighting to tech, such as in the US markets, this could be a significant problem at the index level. 
 
History suggests the stock market do not take kindly to surging bond yields. Since early 2018, a rise in the long bond yield has sent shudders through the stock market on four occasions and probably starting to do so again now. Crucially, this means that the stock market’s incredulous rally since March is reaching a near term valuation catharsis. 
 
Whether this is the start of a more extensive correction or just a minor re-rating to the move in rates is up for debate. With improved vaccination rollout, the world will be quick to normalize. With additional fiscal stimulus providing rocket fuel to the inflationary fire, it’s hard not to think more rates pain will hit many asset classes.

and stocks dropped on Friday, as investors fret over liquidity conditions following a report that the China central bank was focusing more on money market interest rates than the size of its operations. -0.6% as profit-taking ahead of the weekend trumped broad economic recovery

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