European bonds gain on tumbling crude oil prices

The European bonds strengthened on Monday on following weak cues emerging from crude oil futures. Also, investors demand for German bunds were underpinned by weak China’s manufacturing PMI figure. The benchmark German 10-year bonds yield, which is inversely proportional to bond price fell 9.64 pct to 0.253 pct, French 10-year bunds yield dipped 5.53 pct to 0.610 pct, Italian equivalents tumbled 1.30 pct to 1.480 pct, Spanish 10-year bonds yield inched down 1 pct to 1.584 pct and Portuguese 10-year bonds yield dipped 2.61 pct to 3.101 pct, Netherlands 10-year bonds yield inched lower 5.85 pct to 0.483 pct by 1015 GMT.

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 1.29 pct to $46.77 and West Texas Intermediate (WTI) tumbled 0.89 pct to $45.51 by 0910 GMT.

Released on Sunday, China's manufacturing PMI for April dipped by 0.1 pt to 50.1, vs expectations of an increase to 50.3. Similarly, non-manufacturing index meanwhile dropped by 0.3 pts to 53.5. On Friday, the Euro zone 2016 first quarter Gross Domestic product (GDP) rose 0.6 pct q/q, higher than the market anticipation of 0.4 pct q/q, from 0.3 pct in the last quarter of 2015. On annual basis, it rose 1.6 pct y/y, higher than the market consensus of 1.4 pct y/y, from prior 1.6 pct. Moreover, The France’s first quarter GDP climbed 0.5 pct q/q, higher than the market expectation of 0.4 pct q/q, from 0.3 pct in the last quarter of 2015. On annual basis, it rose 2.7 pct y/y, higher than the market expectation of 2.1 pct y/y, from prior 1.8 pct (revised to 1.6 pct). Similarly, the March consumer spending rose 0.2 pct m/m, against market expectation of -0.1, from up 0.5 pct in February.

On the other hand, the Euro zone preliminary April inflation decline 0.2 pct y/y, against market consensus of -0.1 pct, from prior zero. Similarly, the Germany March retail sales tumbled 1.1 pct m/m, against market expectation of 0.3 pct m/m rise, from down 0.4 pct in February. On annual basis, it rose tad 0.7 pct y/y, consensus was for 2.2 pct y/y, from prior 5.5 pct. The French consumer prices were weaker than expected in April, which rose 0.1 pct m/m, as compared to 0.8 pct m/m in March. On annual basis, it declined 0.2 pct, against market expectation of 0.1 pct fall, from prior down 0.1 pct. The milder than-anticipated consumer prices in April underscore the challenge confronting the European Central Bank to push inflation back up toward its 2% target. To accomplish that objective, the European Central Bank cut interest rates in March and extended its quantitative easing program.

The U.K markets will remain closed today on account of May Day, so investors will return on Tuesday to focus on the April sectoral PMI surveys published by Markit. Meanwhile, the pan-European STOXX 600 index down 0.08 pct and the euro-are blue-chip gauge, the STOXX 50, dipped 0.09 pct. The DAX trading 0.73 pct higher and the CAC-40 climbed 0.54 pct by 1020 GMT.