The UK gilts plunged as stock markets mostly firmed Thursday after a rebound on Wall Street, bolstered by gains in oil prices and sign the U.S. economy remains on track. The yield on the benchmark 10-year gilts rose 1 basis point to 0.777 percent, the yield on super-long 40-year bonds jumped 2-1/2 basis points to 1.397 percent and the yield on 25-year bonds also climbed 2 basis points to 1.467 percent by 10:30 GMT.
On Wednesday, the 10-year UK yield dropped to an all-time low of 0.72 percent. We foresee that future movements in gilt yields will depend on monetary policy, and the market will increasingly focus on next week's BoE meeting which should deliver a 25 basis points rate cut. But then whether the MPC does a repeat performance in August and/or re-initiates QE or another stimulus programme is an open question at this point.
Today, crude oil prices edged higher on Thursday for a second day, supported by a report of another fall in U.S. crude oil inventories and a weaker U.S. dollar, although a glut of refined products and economic growth concerns continued to loom over the market.
The American Petroleum Institute (API) said its data showed U.S. crude stockpiles fell by 6.7 million barrels last week, declining for a seventh week in a row. The International benchmark Brent futures rose 1.37 percent to $49.47 and West Texas Intermediate (WTI) jumped 1.43 percent to $48.11 by 10:10 GMT.
In terms of economic data, the UK May industrial production figures reveal a -0.5 percent m/m decline in the headline rate, driven lower by a -0.5 percent m/m drop in manufacturing output. These follow upwardly revised readings of 2.1 percent and 2.4 percent m/m, respectively, in April, and represent more modest corrections than the -1.0 percent m/m declines expected by the market.
These latest figures pre-date the EU referendum outcome of Jun 24 though, and so any market reaction should be muted. This is the more so as there is a strong likelihood that the BoE MPC will begin pre-emptive policy action to stave off the effects of the knock to confidence on economic activity, as soon as next week Thurs. So any market reaction should be small, and fleeting.
Meanwhile, the FTSE 100 trading higher 1.32 percent at 6,547 by 10:30 GMT.
The material has been provided by InstaForex Company – www.instaforex.com