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Bund, Gilt yields up as stock markets rotate lower

Market Analysis

EUBund.F, H1

Today, EU Bund yields extend gains, the 10 year is up 3.3 bp at 0.719% now, the highest level since Monday, the 2-year is up 1.4 bp at -0.567%. Meanwhile, EUBund.F inthe hourly time frame is seen getting lower to 158.20, for 3 consecutive sessions, while it is currently holds a support area around that level.  News that Germany’s finance ministry will go to the SPD, which likely signals and end to Schaeuble’s austerity policy for Germany together with comments from ECB’s Lautenschlaeger saying that price trends justify an end to net asset purchases this year are underpinning the rise in yields. The Executive Board member said she is confident that the ECB will achieve its objective for ensure price stability and that “in this year we can exit the net purchase of our program”, and “start with coming back to a more normal monetary policy”. That shouldn’t be a surprise as it squares with market expectations, but the comments suggest that the sell off in equity markets has not changed the ECB’s projected policy path – at least so far.

The EUBUND, remains on bear phase, short and longterm, with intra-day RSI and DAily RSI, consolidating below the neutral area and close to the oversold crossing. Nevertheless, the intra-day bearish picture could be also confirmed, by the crossing of the 10-period EMA, below the 20 and 50-period EMA, pointing downwards. Next support for today comes at 157.90. 

On the upside, only a break above the confluence of PP level from Pivot analysis and the 20-period MA, at 158.75, could indicate an upside momentum.

Nevertheless, in Europe, the European Commission remains optimistic on growth, with 2018 GDP forecasts for Germany, France, Italy and Spain all lifted compared to the forecast from late 2017. German growth is now expected to accelerate to 2.3% from 2.2%, Spanish growth expected at 2.6% this year, down from 3.1% in 2017 and French growth expected to accelerate to 2.0% from 1.8, while Italian GDP growth is seen steady at 1.5% in 2017 and 2018. For the Eurozone as a whole the forecast for 2018 has been lifted to 2.3% from 2.1%, the projection for 2019 to 2.0% from 1.9% previously, with the Commission saying that the revisions are the “result of both stronger cyclical momentum in Europe, where labour markets continue to improve and economic sentiment is particularly high, and a stronger than expected pick-up in global economic activity and trade”. “Strong demand, high capacity utilisation and supportive financing conditions are set to favour investment over the forecast horizon”. Despite this the inflation outlook is judged to remain subdued, “as labour market slack recedes only slowly and wage pressures remain contained”. Pretty much a mirror of the ECB’s assessment, which sees robust growth but no sign of a build up of inflation pressures.

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Andria Pichidi

Market Analyst

HotForex

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