German Bunds Flat in Thin Trade
The German bunds traded flat on Friday, succumbing to thin trading activity as market receives no more important data or events on the last day. On the contrary, future course in bond prices are likely to be ruled by the movements in the crude oil market. The yield on the benchmark 10-year bunds, which moves inversely to its price hovered at 0.173 pct and the yield on the short-term 2-year bonds remained steady at -0.500 pct by 0900 GMT.
The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices rebounded as turmoil in Nigeria, shale bankruptcies in the United States and crisis in Venezuela all contributed to tightening supplies. Meanwhile, the International benchmark Brent futures rose 0.70 pct to $49.16 and West Texas Intermediate (WTI) jumped 0.73 pct to $48.51 by 0900 GMT.
Moreover, the FOMC in its April 26-27 meeting minutes showed quite a hawkish view of Fed officials. This indicates that several participants believed in April that it is appropriate to raise rates in June if the incoming data indicated a rebound in the economy. On balance, these minutes go a long way in uncovering sentiment not very much reflected in the April FOMC statement. On balance, this release should go a long way in making the June meeting a live event, something that was seen as less likely in the wake of the April meeting. However, given the need for data to cooperate as the meeting approaches, nothing is certain. Nevertheless, we continue to expect only 50bps worth of tightening from the FOMC in 2016, regardless of whether or not they choose to act in June.
In addition, investors did not react to the firm PPI figure, which posted a small gain of 0.1 pct, edging above the forecast of 0.0 pct. Similarly, the Euro zone current account impressed, as the surplus surged to EUR 27.3 billion, well above the estimate of EUR 19.6 billion. Meanwhile, the German stock index DAX Index rose 0.99 pct at 9,893 by 0900 GMT on absorbing strong cues emerging from crude oil futures.
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