German Bund Yields Recover from 1-Month Low, Gain on Rallying Crude
The German 10-year bund yields recovered from 1-months low on Thursday amid following gains in crude oil prices. Also, investors await Bank of England (BoE) interest decision and Governor Mark Carney is expected to tread carefully in its speech on whether to leave the European Union, when he sets out the central bank's latest forecasts against the most uncertain economic backdrop in years. The yield on the benchmark 10-year bonds, which moves inversely to its price rose 1bp to 0.130 pct by 0900 GMT.
In early session today, the European benchmark fell 2 bps, dipped below 0.1 pct for the first time since April. The German bonds have been closely following developments in oil markets because of their impact on inflation and equities expectations. Today, the crude oil prices climbed after International Energy Agency said in its report that the global supply glut to shrink this year. They mentioned that non-OPEC output falling 800k barrel per day (bpd) in 2016, from previous forecast of 710k bpd as unplanned outages start to bite and global crude oil stocks to rise by just 200k bpd in the second half of 2016, as compared to 1.3 million bpd in first half. Nigeria, Libya and Venezuela have seen crude output fall 450k bpd from a year ago and further rally in oil prices to be tempered by brimming crude and product stocks, until more levels of inventory are reached, they added in a note. According to the US DOE, crude inventories decreased 3.4 million barrels, as compared to previous build of 2.8 million barrels for the week ending 6 May. This came alongside decreases seen in gasoline inventories of 1.2 million barrels, from prior 0.5 million barrels, also supported oil prices. The International benchmark Brent futures rose 0.84 pct to $47.99 and West Texas Intermediate (WTI) jumped 0.78 pct to $ 46.59 by 0900 GMT.
Yesterday, the German industrial production tumbled 1.3 pct m/m in March, against markets expectation of 0.2 pct fall, from down 0.7 pct (previous revised down from 0.5). On the contrary, economic ministry said that Q1 overall industry output rises 1.8 pct due to strong hikes in construction and capital goods. He further added that industry has overcome weak phase of H2 2015 and economic trend in the sector pointing upward. On the other hand, Germany trade surplus widened to EUR 26 billion, against market consensus of EUR 20.6 billion, from EUR 20.2 billion (previous revised down from EUR 20.3 billion). In addition, exports rose 1.9 pct m/m, estimates were for zero growth, from prior 1.35 pct and imports fell 2.3 pct m/m , consensus was for 0.3 fall, from up 0.1% (previous revised down from +0.4 pct). Yesterday, the 10-year German yield has dropped to 0.108 pct (the lowest level since April).
The markets will now focus on the April CPI and Q1 GDP on Friday (0600 GMT). Meanwhile, the German stock index DAX Index rose 0.39 pct at 10,014 on rallying crude prices by 0900 GMT.