Credit markets were given every reason to rally today after economic data blew away expectations, the robust earnings season continued and central banks maintained their dovish stance.

Markit manufacturing PMIs throughout most of Europe indicated that the region's economy is on the mend. Investors tend to place greater emphasis on the periphery surveys, as they are already aware of the flash PMIs from Germany and France.

They were rewarded with good news, as Italy's PMI came in ahead of expectations and moved into expansion territory for the first time in two years. Even Greece is showing signs of life - its PMI is now at a 43-month high, and there appears to be a sustained slowdown in the pace of contraction. Spain was the only disappointment dipping back below the 50.0 mark.

It was a similar story in the US, with economic data giving further impetus to the rally. The ISM manufacturing survey surged to 55.4 from 50.9, comfortably beating expectations for 52.0. This supported the rise in the Markit US manufacturing PMI, which rose to 53.7 from 55.4.

Important though the economic data was, the scene had already been set by the Federal Reserve late on Wednesday. The Fed's comments were interpreted as dovish and allayed fears of imminent QE tapering. The strong data today and a subsequent rise in treasury yields suggest that the direction of monetary policy is still highly uncertain, but risk assets seem comfortable with the situation - for now.

The ECB also played its part in boosting risk assets, though Mario Draghi's post-meeting press conference didn't exactly communicate a clear message. However he did espouse the benefits of the Outright Monetary Transactions programme, and there is little doubt that we are still enjoying the fruits of his intervention last summer.

Italy's CDS are a clear indicator of the improved risk environment. On August 2nd 2012 they were trading at over 500bps; a year later they are less than half that level at 247bps.

Italian corporates and financials, such as Enel (214bps, -9) and Unicredit (294bps, -15) also rallied today. In fact, there were very few high-beta credits that didn't gain ground. Solid results from the likes of BMW, Societe Generale and Lloyds Banking Group added to the positive mood, though Royal Dutch Shell (42bps, +2) was a prominent underperformer, after it missed estimates.

The Markit iTraxx Europe rallied by4bps to 96bps, its tightest level for more than two months.

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