German bunds slump ahead of June ZEW economic sentiment index, 10-year auction

The German bunds slumped during European session Monday as investors wait to watch the country’s ZEW economic sentiment index for the month of June and the 10-year auction, scheduled for June 12 and 13 by 09:00GMT and 09:40GMT respectively.

The German 10-year bond yields, which move inversely to its price, jumped 2 basis points to 0.46 percent, the yield on the 30-year note climbed nearly 2-1/2 basis points to 1.15 percent and the yield on short-term 2-year too traded nearly 2-1/2 basis points higher at -0.65 percent by 09:10GMT.

The ECB’s updated economic forecasts, to be unveiled on Thursday, will in due course be used to justify the winding up of the net asset purchase programme. Admittedly, the weakening of the data flow justifies a downwards revision to its GDP forecast for this year. But perhaps that will merely be nudged lower by just 0.1ppt to 2.3 percent y/y, thus reversing the upwards revision made in March. And the ECB might still wish to leave its growth forecasts for 2019 and 2020 unchanged at 1.9 percent and 1.7 percent y/y, according to the latest research report from Daiwa Capital Markets.

However, the ECB might also be tempted to push the forecast for core inflation this year higher too, while leaving the profile for future years unchanged, so that in 2020 it reaches 1.8 percent y/y – close to but below 2 percent y/y, arguably in line with the ECB’s target. 

The rest of the week brings a mixed bag of releases from the euro area, none of which, however, will prove a show-stopper. Tomorrow brings the German ZEW investor survey for June, which seems set to remain downbeat against the backdrop of Italian political risks and BTP market turbulence. 

Wednesday brings euro area IP figures for April – given the data released for Germany, France, and Spain, this is expected to show a decrease in excess of 1.0 percent m/m. Q1 employment data are due the same day and seem likely to show ongoing steady jobs growth, albeit probably a touch down on the 0.4 percent q/q average rate in 2017, the report added. 

Meanwhile, the German DAX rose 0.58 percent to 12,838.65 by 09:15GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 63.60 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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