European Market Update 3/5 - Investors Continue to Rotate into Bonds

- The European indices are currently trading lower in the session after Asian markets closed lower across the board, extending last week’s sell off as investors rotate out of equity and into fixed income amongst the first signs of an unwind in the carry trade.
- European government bonds are trading higher in the session, enjoying increased attention while investors take on government bonds as safe haven investments during a period of increased market volatility and uncertainty. The yield on the 10-year has fallen to its lowest level in over two months at 3.90. Over in the UK gilts are currently trading sharply higher as well.
- Service PMI data for the month of February was mixed in Europe overnight. Italy and France posted numbers that exceeded expectations, while Germany, the Euro-Zone, and the UK posted results that fell below expectations. The overall drop in German and the Euro-Zone has been attributed to the VAT hike, while the decline in the UK was more rounded, lessening the case for further interest rates hikes.
- Bundesbank’s Reckers said overnight “we can live with the Euro exchange rate,” noting that the US Dollar is unlikely to gain strength in the short-term. Reckers also said that the Euro-Group must not be able to pressure ECB policy.
- In the currency the Yen is make three-month highs against the Dollar and the Euro as the carry trade continues to unwind.
- The Qatari Oil Minister said overnight that OPEC will not cut output at the March meeting if prices remain at their current levels. Further more, the oil minister said that oil at $60 per barrel is a “good deal”. Front month crude oil futures are currently trading lower in the session and sit just below the $61 handle.