The eurozone will remain at centre stage today, with sovereign debt problems in the periphery taking prominence over further positive economic data from Germany. Moody's downgraded Greece's sovereign rating three notches to B1 yesterday, pushing the cost of insuring Greek sovereign debt to a record high and putting upward pressure on bond yields and CDS throughout the region. Portugal's 10-year bonds hit a high of 7.5% and spreads with German bunds widened, sparking speculation that it could be close to asking for official financial support. The concern has to be that critical meetings scheduled for March 11 and on March 24 and 25 may fail to deliver the widely hoped ‘catch all' solution to the debt problems, leading to a raft of sovereign rating downgrades and a further sell-off in related bond markets. The current uncertainty will provide an interesting backdrop to presentations by the ECB's Nowotny and Weber this morning.
Data from Germany this morning are poised to highlight the stark divergence in economic prospects, with factory orders forecast to rebound by 2.2% in January after a weather-related 3.4% drop in December. However, the annual growth rate will slow to 15.5%, from 19.7% in December, highlighting just how strong momentum was at the start of last year. The difference now is that the benefits of the export-based recovery are increasingly spreading to the domestic economy, providing the basis for more sustainable growth. The January industrial output figures are released tomorrow.
In other events, the UK DMO will sell £0.8bn of index-linked 2042 bonds this morning, while the US Treasury will issue $32bn of 3-year notes this afternoon.
Chart: German manufacturing sector remains buoyant as global recovery sustains
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