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Prospects Daily: Portuguese government bonds advance following successful short-term debt auction

Global Macroeconomics Team's picture

Important developments today:

1. Portuguese government bonds advance following successful short-term debt auction.

2. Deceleration in Eurozone manufacturing activity slows.

Portuguese government bonds advance following successful short-term debt auction. Portugal sold €1.5 billion of three- and six-month treasury bills at lower yields on Wednesday, successfully passing the test of its ability to access short-term debt markets. The yield on the two-year Portuguese note fell 67 basis points (bps) to 19.63%, while 5-year bond yield dropped 1 bp to 15.8%. Yields on Italian and Spanish bonds also dropped, on optimism that a Greek debt restructuring deal will be reached this week and on news that European Union leaders approved a new fiscal pact and agreed to setup a €500 billion permanent rescue fund earlier this week.

Deceleration in Eurozone manufacturing activity slows. Though still contracting, the pace of deceleration of manufacturing activity in the Eurozone slowed in January. Boosted by solid increases in Germany, and modest gains in the Netherlands and Austria, the Eurozone Manufacturing Purchasing Managers’ Index (PMI) climbed to a 5-month high of 48.8 in January, up from 46.9 in December [see ]. The contraction in output eased in Italy and Spain but reached a record low in Greece. Prospects for future expansion in manufacturing activity remain fragile given the weak demand environment. Indeed, much of recent manufacturing activity has been on account of clearing the backlog of work rather than a rise in new orders (including export orders). New orders, continue to decelerate, albeit at a slower pace.

Among Emerging Markets

In East Asia and the Pacific, China’s official purchasing managers’ index (PMI) increased from 50.3 in December to 50.5 in January. (A reading above the 50 level indicates expansion.). However, the sub-indices for new export and import orders contracted for the fourth month. Thailand’s merchandise exports grew by 9.8% month-on-month (m/m) in December, but were down by 2.1% year-on-year (y/y).

In South Asia, the HSBC Markit manufacturing purchasing managers’ index (PMI) for India rose from 54.2 in December to 57.5 in January, the highest level in eight months, suggesting acceleration in industrial production.

In Sub-Saharan Africa, Uganda’s central bank cut its key policy rate by 100 basis points to 22% to reverse a fall in credit and money supply growth and expectations that consumer price inflation would fall to single digits by end of the year.