ITALY DATA: January PMIs: Services Stronger Than Expected Despite Export Weaknes
The Italian January services PMI was stronger than expected, helping the composite retrace around half of December’s fall. Sales volumes and new orders grew relative to December, the latter despite weakness in export markets. Like Spain, there was another increase in employment in January,
- ITALY JAN SERVICES PMI 52.9 (51.3 EXP, 51.5 DEC)
- ITALY JAN COMPOSITE PMI 51.4 (50.1 EXP, 50.3 DEC)
Key notes from the release:
- “In January, total sales volumes rose again across the sector, but at the slowest pace since August last year”
- “While growth in total new orders was linked by panellists to greater interest from clients, weakness in demand from international customers and raised levels of global uncertainty were reported.”
- “Supporting the expansion, net employment continued to increase across the Italian services economy in January.
- “When looking ahead, Italian service providers were less optimistic in their growth expectations for the coming 12 months in January”
- “Output charge inflation intensified to its strongest in six months at the start of the new year, as firms looked to pass through cost pressures to clients at a faster rate. The hike in service fees was solid but comparatively weaker than that of costs”.
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EGBS: Light Spread Narrowing With Euro Equities Buoyant
10-year EGB spreads to Bunds are biased up to 1bp narrower this morning, supported by the 1% rally in European equity futures. With the year-ahead expected to be characterised by fiscal loosening in Germany and net fiscal tightening in the rest of the Eurozone, there may be scope for further outperformance in 2026 – especially if EUR rates vol remains close to current levels. However, risks include weaker-than-expected growth dynamics and ongoing geopolitical tensions, particularly given the magnitude of tightening already seen in recent years.
- Today’s rally in European equities could represent start-of-year cash deployment by investors. However, there are some idiosyncratic drivers to consider, with the IT and industrials sectors outperforming. ASML shares are up around 3.5%, following on from tech strength in Asia-Pac indices overnight. Bernstein also upgraded ASML to "Outperform" from "Market Perform" this morning. Meanwhile, industrials strength has been relatively broad-based, but Rheinmetall outperformance (almost +7%) may a function of increased geopolitical/defence risks following weekend US/Venezuela developments.
- EGB markets will also be focused on the seasonal January supply uptick in the coming weeks. We pencil in issuance of over E50bln in each of the next two weeks, including possible syndications from Austria, Belgium, Germany, Ireland, Portugal and the EFSF this week. Next week, syndications are also possible from France, Greece and Italy.
- See our daily EGB publication for more
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SONIA OPTIONS: Adding to the Call Spread vs Put Spread
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