The European bonds strengthened Tuesday after EU Commission in its latest spring report lowered Euro zone GDP growth outlook. Also, tumbling crude oil prices drove investors towards safe-haven assets. The benchmark German 10-year bonds yield, which is inversely proportional to bond price fell 10.91 pct to 0.244 pct, French 10-year bunds yield dipped 3.47 pct to 0.606 pct, Italian equivalents tumbled 0.81 pct to 1.473 pct, Spanish 10-year bonds yield inched down 0.38 pct to 1.584 pct and Portuguese 10-year bonds yield dipped 1.28 pct to 3.085 pct, Netherlands 10-year bonds yield inched lower 4.74 pct to 0.482 pct, British 10-year bonds yield inched lower 1.31 pct to 0.577 pct by 0930 GMT.
The EU Commission in their spring report mentioned that Euro zone GDP growth is expected to be at 1.6 pct in 2016, down from previous forecast of 1.7 pct and to 1.8 pct in 2017, from earlier forecast of 1.9 pct. Having said that Germany 2016 GDP is likely to be around 1.6 pct, against previous anticipation of 1.9 pct and in 2017 GDP to grow 1.6 pct, lower than the previous forecast of 1.9 pct. Similarly, British 2016 GDP is expected to hover around 1.8 pct, from up 2.4 pct in the previous estimation and in 2017 GDP to grow 1.9 pct, from previous consensus of 2.2 pct. Moreover, France 2016 GDP is expected to grow 1.3 pct vs previous forecast of 1.4 pct and also France will miss nominal budget deficit reduction target next year unless it takes action. They further added that Italy's debt won't fall this year after rising last year and breaching EU rules and its structural deficit will rise in 2016 rather than fall. Furthermore, Spain's structural deficit will rise this year as well as next year, breaching EU recommendations and Spain will miss goal of cutting deficit below 3 pct this year and also next year, they noted.
“The Eurozone economy is likely to remain broadly stable this year but faces substantial downside risks to growth and inflation owing to emerging market risks and a renewed drop in oil prices. Domestic demand will likely power currency area growth this year, in part to improving labour markets and higher real disposable incomes. Government spending will also be broadly supportive, the Commission said, although it could be affected by the region's migration challenges,” said the EU Commission in their spring report.
In addition, the European bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the European Central Bank's target. Today, crude oil prices tumbled by snapping 6-month high as rising production in the Middle East outweighed a decline in U.S. output and a recent slide in the dollar, which has been supporting crude. OPEC supplies rose to 32.64 million barrels per day in April, from 32.47 million barrels per day in March, according to a Reuters survey. That almost matches January's 32.65 million barrel per day, when Indonesia's return to OPEC boosted production to the highest since at least 1997. The International benchmark Brent futures fell 0.46 pct to $45.62 and West Texas Intermediate (WTI) tumbled 0.89 pct to $44.38 by 0930 GMT.
On the other hand, investors did not react to the firm March PPI figure, which rose 0.3 pct m/m, against market expectation of 0.1 pct m/m rise, from down 0.7 pct in February.
Meanwhile, the pan-European STOXX 600 index was down 1.32 pct and the euro-area blue-chip gauge, the STOXX 50 dipped 1.51 pct. The FTSE 100 Index fell 0.79 pct, the DAX trading 0.71 pct lower and the CAC-40 slide 1.38 pct by 0930 GMT.
The material has been provided by InstaForex Company – www.instaforex.com