Euro tumbles, investors ramp up ECB rate cut bets after weak PMIs
Bond yields, euro tumble on weak PMIs
Investors ramp up ECB rate cut bets
By Stefano Rebaudo and Dhara Ranasinghe
Nov 22 (Reuters) -German short-dated government bond yields fell to multi-year lows, while the euro tumbled to two-year lows on Friday as markets ramped up European Central Bank rate cut bets after data showed a sharp decline in euro area business activity.
Business activity in theeuro zone took a sharp turn for the worse this month as the bloc's dominant services sector contracted and manufacturing sank deeper into recession, a survey showed on Friday.
France slowedat the sharpest pace since early this year, while Germany's business activity fell for a fifth month running and at the quickest rate since February.
The reaction from investors was swift as they drove euro zone government bond yields down on expectations of further ECB rate cuts. The euro briefly fell as much as 1% EUR=EBS.
Money market pricing suggested that investors now price more than a 50% chance of a 50 basis point (bps) rate cut at the ECB's December meeting, up from 20% before data. EURESTECBM1X2=ICAP
A 25 bps cut is fully discounted.
Traders also priced in an ECB deposit facility rate at around 1.80% in July EURESTECBM6X7=ICAP, downfrom 1.95% before PMI figures.
"Markets are reacting because they think the ECB needs to do more," said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, adding that he still expects the ECB to cut by 25 bps in December.
Germany’s 2-year bond yields DE2YT=RR, more sensitive to expectations for the ECB policy rates, hit1.98%, its lowest level since December 2022.
Bond yields were down across the euro area with Italian 2-year yields 9 bps lower at 2.49% IT2YT=RR.
Bank stocks .SX7P, which have benefited from higher interest rates since 2022, fell as much as 2.1% as markets moved to price in more rate cuts from the ECB following the weak PMI data.
The pan-continental STOXX 600 index .STOXX was up 0.4% on the day as of 10:08 GMT, having been higher by 0.75% before the data.
Markets are also closely watching developments on the geopolitical front, as investors have bid for safe-haven government bonds.
Russia fired a hypersonic intermediate-range ballistic missile at the Ukrainian city of Dnipro on Thursday. North Korean leader Kim Jong Un has accused the United States of ramping up tension and provocations, saying the Korean peninsula has never faced a greater risk of nuclear war, state media KCNA said on Friday.
Germany's 10-year yield DE10YT=RR, the benchmark for the euro area, was down 6.5 bps at 2.25%, after hitting its lowest level since October 21. It was up 2 bps before thedata.
Reporting by Stefano Rebaudo and Dhara Ranasinghe; additional reporting by Samuel Indyk. Editing by Elisa Martinuzzi.
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
