German bunds surge after January manufacturing PMI disappoints; ECB policy meeting in focus

The German bunds surged during European session Thursday after the country’s manufacturing PMI for the month of January disappointed market sentiments ahead of European Central Bank’s (ECB) monetary policy meeting, scheduled to be held today by 12:45GMT.

The German 10-year bond yields, which move inversely to its price, fell nearly 2 basis points to 0.209 percent, the yield on 30-year note slipped 1-1/2 basis points to 0.814 percent and the yield on short-term 2-year remained tad lower at -0.583 percent by 10:05GMT.

January saw the IHS Markit Flash Germany Manufacturing PMI slip below the 50.0 ‘no-change’ mark to 49.9, indicating the first (albeit only fractional) deterioration in overall business conditions in the sector since November 2014. The slippage since December (51.5) reflected not only weaker trends in output and new orders but a considerable moderation in supply chain pressures. The increase in input lead times in January was the least marked since July 2016.

Today’s main event in the euro area will be the conclusion of the ECB’s latest policy meeting, which provides Draghi with the opportunity to provide a more dovish tone in suiting with the recent further deterioration in the economic data-flow. While the ECB’s policy guidance will highly likely be left unchanged, Draghi’s opening statement should acknowledge that the risks to the economic outlook are now skewed to the downside. Indeed, at the European Parliament last week Draghi admitted that uncertainties remain prominent while some Governing Council members at December’s meeting had already cautioned more strongly about rising downside risks, Daiwa Capital Markets reported.

Meanwhile, the German DAX rose 0.59 percent to 11,136.97 by 10:10GMT, while at 10:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at -126.49 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex