The German 10-year bund yields remained little changed on Tuesday after Federal Reserve Chair Janet Yellen said US interest rate hikes are likely on the way. Also, benchmark bund continued to hover around 0.08 percent mark after falling to one-year low of 0.06 percent on Monday.
The Federal Reserve Chair Janet Yellen said that if incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, further gradual increases in the federal funds rate are likely to be appropriate and most conducive to meeting and maintaining those objectives. Referring to the weaker than expected May employment report, Yellen noted that she sees good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones.
As a result, she expects the economic expansion to continue, with the labor market improving further and GDP growing moderately. This appears to be a solid attempt to prevent the May employment report from derailing efforts to prepare markets for a summer rate hike. With Lockhart and Bullard going a long way in talking down a June hike, but keeping open support for possibly one in July, we expect a good deal of support for normalization to resume, remembering that it is not about the incoming data itself but more how the Fed takes it into account.
The Eurozone Q1 2016 GDP (final) rose 0.6 percent q/q, higher than the market consensus of 0.5 percent q/q, from 0.6 percent in the last quarter of 2015. Spending was the main driver of GDP in the first quarter with both household and private investment leading the way. Household consumption rose 0.6 percent q/q, against market consensus of 0.5 percent q/q, from prior 0.2 percent and Government spending jumped 0.4 percent (expectations was for 0.4 percent q/q), as compared to previous 0.6 percent. Moreover, Exports climbed 0.4 percent q/q, against 0.7 percent in Q4 of 2015. Similarly, Imports rose 0.7 percent, lower than previous of 1.4 percent q/q in the last quarter of 2015.
On Friday, the US May Labor Department employment situation report revealed overall only +38k increase in non-farm payrolls, well below market expectations for a +160k increase, as compared to the revised +123k reading in April (previous was +160k). This comes alongside a considerable decrease in the unemployment rate to 4.7 percent, below expectations for a 4.9 percent result, down from 5.0 percent. Average hourly earnings increased +0.2 percent m/m, from revised +0.4 percent m/m reading seen in April, previous was +0.3 percent m/m.
Additionally, average weekly hours held unchanged at 34.4 in May. Overall, weaker net revisions were seen in March and April (net -59k revisions).
The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices continue to hover at $50 mark. The International benchmark Brent futures rose 0.65 percent to $50.88 and West Texas Intermediate (WTI) rose 0.36 percent to $49.87 by 09:10 GMT.
The German central bank (Bundesbank) lowered its economic growth and inflation forecast in its latest report published on Friday. They cut 2016 GDP forecast to 1.7 percent, as compared to 1.8 percent forecast in December. For 2017 it reduced GDP forecast to 1.4 percent, from 1.7 percent in its previous estimates, for 2018 growth it made an initial forecast of 1.6 percent.
Similarly, it lowered the 2016 inflation forecast to 0.2 percent, from 1.1 percent in December, 2017 inflation forecast was also lowered to 1.5 percent, as compared to 2.0 percent in its earlier forecast and for 2018 it made an initial forecast of 1.7 percent.
Meanwhile, the German stock index DAX Index rose 1.87 percent at 10,310.5 by 9:25 GMT.
The material has been provided by InstaForex Company – www.instaforex.com