German bunds flat in muted trading session after April industrial production, trade balance disappoints investors

The German bunds remained flat in a muted European trading session Friday after the country’s industrial production and trade balance data for the month of April both disappointed market investors ahead of a long weekend holiday.

The German 10-year bond yields, which move inversely to its price, remained flat at -0.233 percent, the yield on 30-year note hovered around 0.368 percent and the yield on short-term 2-year too traded steady at -0.645 percent by 10:10GMT.

Having risen 0.5 percent q/q over the first quarter, it was no surprise that German industrial production went into reverse in April. But this morning’s figures were much weaker than expected, with the decline of 1.9 percent m/m the most since 2015, and the drop in manufacturing and mining output steeper still at 2.5 percent m/m to leave it 2.0 percent below the Q1 average level, Daiwa Capital Markets reported.

Dispiritingly, production of capital goods was down a hefty 3.3 percent m/m, similarly the biggest fall in almost four years, while output of intermediate and consumer goods fell too.  Energy output was also down -1.1 percent m/m) leaving construction – for some time the most buoyant sector in Germany – the sole source of production growth (albeit up just 0.2 percent m/m).

Compared to a year earlier, total IP fell 1.9 percent with manufacturing and mining output down 3.5 percent.

However, Germany’s latest labour cost data were at least more upbeat, up in Q1 by 1.1 percent q/q, the most since Q416. However, that appeared little more than payback for weakness the prior quarter (just 0.2 percent q/q) related to typical volatility in non-wage costs. Indeed, compared to a year earlier, labour cost growth picked up just 0.5ppt to 2.5 percent y/y, still well within the range of the past four years, suggesting no significant new impetus to underlying price pressures from the labour market, the report added.

Meanwhile, the German DAX traded 0.64 percent higher at 12,029.85 by 10:20GMT, while at 10:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 43.61 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex