The Eurozone government bonds slumped on Thursday as major stocks retained most of the previous session's big gains. The benchmark German 10-year bonds yield, which moves inversely to its price rose 3 basis points to -0.098 percent, French 10-year bunds yield jumped 2-1/2 basis points to 0.241 percent, Irish 10-year bonds yield moved up 1 basis points to 0.612 percent, Italian equivalents inched higher 1-1/2 basis points to 1.311 percent, Netherlands 10-year bonds yield climbed 3 basis points to 0.134 percent and the Spanish 10-year bonds yield bounced more than 1/2 basis points to 1.273 percent by 10:00 GMT.
Sources from Reuters noted the European Central Bank is in no rush to incur in further easing following the recent ‘Brexit’ vote as long as markets remain calm. Reports from ECB VP Constancio as well as other unnamed official sources quoted by Reuters indicate that the ECB has no plans to take further action at present, but we continue to look for a 10 basis points deposit rate cut by September at a minimum.
Eurozone preliminary June CPI inflation rose +0.1 percent y/y from down -0.1 percent in May, which is slightly above market expectations of flat 0.0 percent. It is also the highest in 5-months. The ex-energy-and-unprocessed food rate remained steady at 0.8 percent y/y as expected, though the narrower core measure of ex-energy, food, alcohol and tobacco picked up to 0.9 percent.
While rising oil prices are raising headline CPI, both measures of inflation are low enough so that the release should have little impact on the ECB's outlook.
In the Eurozone, ECB vice president Vitor Constancio said that the ECB has the capacity to respond to the fallout from the UK’s vote to leave the EU, though the market impact has so far been relatively contained.
However, he warned of the risk that “banks could start a new phase of deleveraging” in the wake of the UK’s vote to leave the EU. The health of the Italian banking system has been the primary focus of attention this week.
However, the IMF has also warned that ultra-low interest rates pose a threat to the profitability of Germany’s €13tn financial sector, as it steps up its call for the country’s banks and insurance groups to restructure.
Meanwhile, the pan-European STOXX 600 index was up 0.17 percent and the euro-area blue-chip gauge, the STOXX 50 jumped 0.80 percent. The DAX trading 0.39 percent higher and the CAC-40 rose 0.73 percent by 10:00 GMT.
The material has been provided by InstaForex Company – www.instaforex.com