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The importance of yields

The standout in yesterday’s trading was sterling, where the minutes to the latest MPC meeting pushed home the point that the next move in rates is going to be up, even if they gave little away in terms of timing. We pointed out the near-term potential for sterling which has come to fruition, but the currency is coming under some pressure this morning and is seen back below the 1.50 level on cable. We have 2 weeks to go before the general election and sterling is likely to become increasingly trapped by the prospect of a hung parliament, but a lot of that is already in the price. The other points of note yesterday was the rise in yields seen in the Eurozone, with the Germany 10Y, which had dipped below the 0.10% level, moving back to 0.15%. The shorter-dated yields (more influential on the currency) also moved higher, but the German short-dated yields remain deeply in negative territory, with this continuing to put downward underlying pressure on the single currency.

The kiwi has been the main point of interest in overnight trade. Comments from the RBNZ were suggesting that rates are set to remain stimulatory “for a prolonged period”. This continues the shift we’ve seen earlier this year to a more neutral stance from the central bank, with these latest comments putting the kiwi below the 0.76 level. Finally, the latest data in China has come out weaker than expected, the HSBC manuf series seen at 49.2. We’re also seeing weaker PMI data for the latest (provisional) French PMI data.

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