Further rise in bond yields

Sterling chalked up solid gains against both the euro and the dollar last week, strengthening to around 86.5p and $1.40 respectively which is where it kicks off this week. The single currency bounced off  a low of almost $1.20 against the dollar to close out business on Friday little changed on the week overall at around $1.21, which is where it too is trading this morning

The prospect of a vaccine-driven economic recovery has contributed to a notable rise in core bond yields recently. This accelerated last week and is continuing today, leaving US and German 10-year yields up around 15bps from this time last week, at around 1.37% and -0.30% respectively, and equivalent UK yields about 20bps higher at 0.70%

The Composite PMI for the Euro Area was largely unchanged in February, according to the flash reading published on Friday, but it remained below the 50 level (at 48.1) thus signalling that the economy has continued to contract into 2021 following a fall in GDP of 0.6% (quarter-on-quarter) in Q4 last year

In the UK, the flash Composite PMI rose to 49.8 this month, suggesting economic activity stabilised after contracting in January, while in the US February’s PMI reading of 58.8 was largely unchanged on the previous month pointing to an economy that remains in expansionary mode

It is quiet on the data front today but Euro Area and US inflation numbers are published tomorrow and Friday respectively, while the latest labour market report (Q4 2020) is published in the UK tomorrow