European yields headed north in the opposite direction of stocks, with Gilts underperforming after the July Construction PMI fell less than expected, helping the FTSE 100 to outperform. Eurozone peripheral markets are underperforming and the concomitant decline in stocks and bond futures reflects the cautious stance at central banks. The BoJ may have eased last week, but actions fell short of what markets had been hoping for and today’s RBA cut also failed to lift the ASX. The BoE may cut rates again on Thursday, but with the verdict of the ultimate impact of the U.K.’s decision to leave the EU still out central banks will be reluctant to use up all their remaining fire power too early. A drop in demand at Japan’s bond auction added to pressure on European bond futures.

The ECB in any case is now off the radar until September and today’s higher than expected PPI number will do nothing to prompt Draghi into action, even if the headline rate remains firmly in negative territory, thus leaving the ECB some room to maneuvered should it become necessary.

Profits Warning from Commerzbank Weighs on the Banking Sector

European bank stocks remain under pressure, with a profit warning from Commerzbank highlighting the problems for the sector in the low interest rate environment. News that Credit Suisse and Deutsche Bank will be dropped from an index of Europe’s top 50 blue-chip companies next week only added to pressure on the European banking index, which has already lost more than 30% this year.

In the cash market the 10-year Bund yield is up 4.3 basis points at -0.059% and the Gilt yield up 5.6 basis points at 0.78%. Commerzbank’s profit warning today only highlighted the risks from deteriorating profits and slumping investment income in the low interest rate environment.

Switzerland’s July PMI unexpectedly fell to a 17-month of 50.4, well of the 51.6 reading in June and off the median forecast for a rise to 51.9. The outcome contrasts the KOF leading indicator for July, which beat expectations in rising to a 102.7 reading. The PMI data suggest that the manufacturing sector drifted to a near stagnant state in July, having seen a cycle peak of 55.8 in May. The data will sharpen Swiss policymaker concerns about the strength of the franc.