It would appear that European bond markets do not share the optimism of economists in Brussels, who are welcoming the greater strength of our economies (based on the PMIs published this Thursday) against a backdrop of softening inflation (which could prove very temporary if oil picks up again after testing $81.5/82).

In detail, the HCOB composite PMI flash index of overall activity in the eurozone rose from 51.7 in April to 52.3 in May, signalling a 3rd consecutive monthly increase in the region's private sector activity levels.

In France, on the other hand, the HCOB composite flash PMI index of overall activity fell for the first time since the start of the year, dropping from 50.5 in April to 49.1 in May, and thus returning to contraction territory after a brief return to growth in April.

In Europe, yields are deteriorating, in line with the tension observed the previous day: +6 basis points on our OATs at 3.086% and on Italian BTPs at 3.900%, and +6.5 basis points on Bunds at 2.6010%.
Across the Channel, Gilts are tightening by +4 basis points to 4.3050%, doing better - for once - than Euro Treasuries and US T-Bonds.

The US '10-yr' reflects both a very vigorous US economy (albeit boosted by deficits) and concerns arising from the minutes of the last Federal Reserve meeting, which contained some nasty surprises: dissension over strategy, and the feeling that the inflation problem is far from being solved.

The yield on Treasuries with a maturity of '2034' stretched by +5.5pts to 4.490%, its worst level of the week, while the '2-year' added +6pts to 4.938% (another session like this and the '5%' will be revised).

According to CME Group's FedWatch barometer, the probability of a rate hike in September is now estimated at less than 50%, compared with 51.6% yesterday.

In US figures published today, growth in the US private sector accelerated sharply in May, according to S&P Global's composite PMI, which came in at 54.4 in flash estimate, a 25-month high, compared with 51.3 in final data for the previous month.

S&P Global points out that the 'services' sector is driving this increase, with the strongest growth in output for a year, but that the manufacturing sector is also showing more vigorous growth.
New home sales fell by 4.7% in the USA in April (sales are down 7.7% on an annualized basis), according to statistics published by the Commerce Department on Thursday.
These came to 634.000 last month on a seasonally-adjusted annualized basis, compared with a revised 665,000 in March.
The median price of a new home reached $433,500 in April, compared with $439,500 the previous month, and the average level was $505,700, down from $527,400 in March.

Finally, the Labor Department announced that new jobless claims in the US fell by -8,000 (to 215,000).
The four-week moving average - more representative of the underlying trend - came in at 219,750, an anecdotal increase of 1,750 on the previous week.

The number of people receiving regular benefits rose by 8,000 to 1,794,000 in the week to April 29, the most recent period available for this statistic.




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