After Central Bank Drama Comes Europe Data Traders Are Dreading

(Bloomberg) --

After a week of market havoc and an international response from central banks, investors are looking ahead to a busy run of economic data for insight into the damage wrought by the coronavirus.

It may even, in part, reflect some of the impact of the emergency stimulus. There’s a survey of factory and services sentiment from IHS Markit, which may include responses taken after news of the ECB’s action broke. Due out Tuesday, the studies cover the euro area and the U.K. They take submissions until the day before publication, having opened on March 12.

They round up a volatile month for Europe’s bond market. Yield premiums across the euro-area and the U.K. surged higher as governments pledged stimulus to combat the economic fallout before unscheduled monetary action by the European Central Bank and Bank of England helped ease tensions. The looming data may not be as dramatic, or definitive, but the numbers will be closely watched.

The scrutiny will come after the ECB’s new bond buying program worth 750 billion euros ($803 billion), which amounted to a ‘game-changer,’ according to Jamie Searle, a fixed-income strategist at Citigroup Inc. He adds that yield spreads in the currency area “now have a credible backstop.” Likewise, the BOE’s fresh, 200 billion pound bond buying program is “a welcome relief for the gilt market and allows an ample rise in issuance,” he says.

Italy’s 10-year yield premium over the equivalent German debt rapidly tightened after the ECB’s announcement, falling under 200 basis points. The measure reflects the extra returns investors demand to hold Italian debt over the relative safety of bunds. It had widened to as many as 323 basis points beforehand, when the bund yield also climbed to its highest since May.

More Action

For Thursday’s regularly scheduled policy meeting at the BOE, money markets don’t expect any action. That’s after a cumulative 65 basis points of easing already this month, which took the Bank Rate down to 0.1%. They expect more action at other central banks next month, pricing in a 70% probability of the ECB easing the deposit rate 10 basis points and a 45% chance of the Fed cutting the interest rate to 0% in April.

Euro-area bond sales are set to total around 11 billion euros, including from Germany Belgium and Italy, according to Commerzbank AG.

Also next week:

• Euro-area, German, French and U.K. preliminary manufacturing and services PMI for March are due Tuesday
• Germany’s final March Ifo business climate report is published Wednesday
• U.K. consumer price index inflation data are due Wednesday; Retail sales Thursday
• Fitch Ratings reviews the U.K. Friday

©2020 Bloomberg L.P.