German bunds surge after May manufacturing PMI remains stable; eyes on Eurozone May CPI

The German bunds during European session of the first trading day of the week Monday after the country’s manufacturing PMI for the month of May remained stable, while investors remain focussed on the eurozone’s consumer price inflation (CPI) data for the similar period, scheduled to be released on June 4 by 09:00GMT for further direction in the debt market.

The German 10-year bond yields, which move inversely to its price, slipped nearly 1-1/2 basis points to -0.215 percent, the yield on 30-year note suffered 3 basis points to 0.399 percent and the yield on short-term 2-year traded nearly flat at -0.665 percent by 09:50GMT.

Germany’s May IHS Markit/BME manufacturing PMI – a single-figure snapshot of the performance of the manufacturing economy – register 44.3, down fractionally from 44.4 in April and one of its lowest readings since mid2012. The fall in the PMI reflected the employment, stocks of purchases and supplier delivery times components.

The main event in the euro area this week will be the conclusion of the ECB policy meeting on Thursday, which will be watched closely for the updated staff economic forecasts and additional details for the pricing of the forthcoming TLTRO-III liquidity operations, due to start in September, Daiwa Capital Markets reported.

While a a modest upward tweak might be made to its full-year growth forecast of 1.1 percent in 2019 – due principally to stronger than expected GDP growth in Q1 – the underlying economic momentum isn’t necessarily materially stronger than it was three months ago. So the ECB’s (overoptimistic) projections for 2020 and 2021 (1.6 percent and 1.5 percent respectively) seem unlikely to be amended, and the Governing Council will likely judge that the risks to the outlook are still skewed to the downside.

The inflation outlook seems unlikely to be substantially different from March’s assessment too, with headline and core CPI forecast to increase 1.2 percent y/y in 2019, rising to just 1.6 percent y/y in 2021.

And so, the ECB will unlikely feel the need to change its forward guidance at this meeting, with our expectation that it will merely reiterate that interest rates are still expected to remain unchanged “at least through the end of 2019”, the report added.

Meanwhile, the German DAX traded tad 0.35 percent higher at 11,708.89 by 09:55GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 9.69 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex