The German bunds slumped on Monday as investors cooled on safe-haven instruments after Federal Reserve Chief Janet Yellen suggested that an interest rate hike could be around the corner. Also, investors shifted from safe-haven buying on the expectations of firmer May consumer inflation result. The yield on the benchmark 10-year bonds, which moves inversely to its price rose more than 2 basis points to 0.167 percent by 0835 GMT.
The Fed Chair Yellen on Friday said that if economic gains continue and if the labour market continues to improve that it is appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate. Although lacking a time factor, this continues to point to increased support for a summer rate hike from the FOMC.
Looking ahead, German CPI figures headline year-on-year inflation rate is expected to rise to 0.1 percent (0.3 percent m/m) in May, from down 0.1 percent (-0.4 percent m/m) in April. The report seems unlikely to generate a strong response from the Euro considering the outcome's limited implications for near-term ECB policy trends as the central bank waits to evaluate the impact of a suite of stimulus measures unveiled earlier.
On the other hand, the German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices fell to below $50 after strong dollar weighed on markets and Canadian oil sands production was expected to increase this week. Crude oil prices crossed $50 mark after the U.S. government reported a larger-than-expected drop in crude inventories last week. According to the US DOE, crude inventories decreased 4.2 million barrels, as compared to a build of +1.3 million barrels seen prior for the week ending 20 May. This came alongside an increase seen in gasoline inventories of +2.0 million barrels, from a draw of -2.5 million barrels seen prior and a decrease in distillate inventories of -1.3 million barrels, against a draw of -3.2 million barrels. The International benchmark Brent futures fell 0.50 percent to $49.70 and West Texas Intermediate (WTI) dipped 0.36 percent to $49.15 by 0600 GMT.
The markets will now focus on May consumer inflation at 1200 GMT, April Retails sale (0600 GMT), May unemployment change (0755 GMT), Euro zone May CPI (0900 GMT) on Tuesday, May Manufacturing PMI (0755 GMT) on Wednesday and European Central Bank ECB) June interest rate decision on Thursday (1145 GMT).
Meanwhile, the German stock index DAX Index climbed 0.29 percent at 10,312 by 0835 GMT.
The material has been provided by InstaForex Company – www.instaforex.com