By Marc ChandlerNEW YORK ( BBH FX Strategy) -- The shockingly weak eurozone flash PMI, especially the sub-50 reading for German manufacturing, is the main focus today. New orders have been weak and the Bloomberg consensus does expect the eurozone economy to contract not only in the first quarter but in Q2 and Q3 as well. Many participants seem to have confused the dramatic equity market rally in Q1 and reduced tail risks with economic strength. There is also a bit of a double-whammy for Germany. It had diversified its exports away from the periphery in Europe toward Asia, especially China just as fears of a harder landing -- more pronounced slowdown -- have been "confirmed" by the drop in the HSBC flash manufacturing PMI.
The yield on Italy's 10-year bond (generic) has risen every day this week and is now trading about 40 basis points higher than on March 9 when the yield bottomed. The yield now is above 5% for the first time since March 3. Recall that because of the sovereign bond holdings by Italian banks, the decline in sovereign yields not only lowered the debt servicing costs for the government but also strengthened the banks' balance sheets. The process could go into reverse. The same dynamic is evident in Spain. Spain's 10-year yield has risen by about 65 basis points this month. Today is the ninth consecutive session that has seen the Spanish 10-year yield rise. It is flirting with the 5.5% level for the first time since mid-February.