Euro on the back foor

Oil prices headed north yesterday notwithstanding the extension of the ceasefire – with Brent crude moving back up above $100 p/b as the situation in the Strait of Hormuz remains a mess – putting upward pressure on bond yields, while European equity markets ended lower for a third day running. The euro lost ground to the dollar, falling to around $1.17, and has now shed more than a cent from its best levels towards the end of last week. Sterling has held in better against the dollar albeit still slipping back below $1.35, and has firmed to around £0.8675 versus the euro, with the pound seemingly supported by higher (relative) UK yields.

Short-dated UK yields rose by around 6bps yesterday, taking the increase so far this week to  more than 20bps, while US and German yields ticked up by 2-3bps, leaving them 10-15bps higher week-to-date. European equities shed almost half a percent, the third consecutive day of losses. US indices, in contrast, ended in the black, with the S&P 500 closing at another new all-time high, although the futures market points to a weak opening later today.

Flash PMI data for France released a short while ago were softer than expected. The composite index fell further below the key 50 in April to its lowest level (47.6) in more than a year, dragged down by a further decline in activity in the services sector of the economy.

ECB Chief Economist Philip Lane says “no one really knows how long the situation (in the Middle East) will last, and I doubt we’re going to have clarity on that” by the time of next week’s monetary policy meeting (pointing to unchanged rates), adding that “until we know more about how long this war is going to last, it is really hard to know whether this is going to prove to be a temporary phase or a much bigger shock to the European economy.”

For the day ahead, economic data due include flash PMIs for April in the Euro area, UK and the US, while the regular weekly jobless claims report is due in the US also.