The U.K gilts traded mixed on Thursday after oil prices have risen above $50 a barrel for the first time in nearly seven months as the cost of crude continues to bounce back. On the other hand, rising Brexit fear among investors supported the fixed income securities. The yield on the benchmark 10-year bonds rose 1bp to 1.465 pct and the yield on the 40-year bond dipped 1/2 basis points to 2.110 percent by 1055 GMT.
The British gilts have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of England's target. Today, crude oil prices crossed $50 mark for first time in seven months after the U.S. government reported a larger-than-expected drop in crude inventories. 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 rose 0.70 pct to $50.09 and West Texas Intermediate (WTI) jumped 0.69 pct to $49.90 by 0900 GMT.
In addition, the second estimate of UK’s first quarter GDP growth was unrevised from the earlier estimate of 0.4 percent q/q, on par with consensus projections. The annual growth was slightly lowered to 2 percent y/y, the slowest growth since Q1 2013. The construction output and industrial production data after the release of first estimate of GDP was weak, but it did not provide much reason to anticipate a downward revision in the second estimate of GDP. Private consumption was revised up to 0.7 percent q/q, from 0.6 percent, as was government spending, to 0.4 percent, and fixed investment, to +0.5 percent q/q (a major upgrade from -1.1 percent). On the other hand, exports were revised down sharply to -0.3 percent (from +0.1 percent previously), while imports were trimmed to 0.8 percent q/q.
According to the latest EU referendum poll by BMG 44 percent favoured to 'remain', 45 percent voted for leave and remaining were inconclusive. Earlier, the U.K poll by YouGov shows the public evenly split on Brexit at 41-41 percent. This survey, conducted on 23-24 May, represents a net 4 percent swing against European Union membership since the organisation's poll last week. On Monday, the U.K public opinion poll released by Opinium over the weekend showed 44 percent of the voters favoured remaining in the EU and 40 percent supported leaving the European Union. However, this is similar to most recent surveys showing a modest balance against Brexit. Moreover, the UK Chancellor of the Exchequer Osborne warned over the weekend that Brexit would cause a year-long recession. UK Treasury in its recent report on Brexit concluded that Brexit could cause the pound index to fall 12-15 percent and push up jobless rate by 520k-820k. Added this catastrophic event will lower real wages by 2.8-4.0 percent and could raise inflation by 2.3-2.7 percentage point. Budget deficit could increase 24-39 billion and a Brexit vote would result in a marked deterioration in the economic security and prosperity, they added further.
Meanwhile, The FTSE 100 rose 0.26 pct or 16.15 points to 6,279 by 1055 GMT on tacking firm crude oil prices.
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