German bunds jump after lower-than-expected April industrial production, trade balance disappoints

The German bunds jumped during European session Friday after Italy’s political woes calmed down, following the formation of a new government, which weighed on debt prices.

The German 10-year bond yields, which move inversely to its price, plunged 7 basis points to 0.42 percent, the yield on 30-year note slumped 6 basis points to 1.11 percent and the yield on short-term 2-year traded nearly 3-1/2 basis points lower at -0.67 percent by 09:40GMT.

The disappointing euro area data flow continues with German and French industrial production figures surprising on the downside this morning. In Germany, total industrial output fell 1.0 percent m/m in April. Manufacturing output dropped at an even steeper rate, 1.7 percent m/m, with the production of capital, consumer and intermediate goods reporting losses of 1.3 percent m/m, 2.1 percent m/m and 2.0 percent m/m respectively.

Looking at the broader trend, and consistent with the message from most recent business sentiment surveys, German manufacturers have seen a marked loss of momentum following last year’s vigorous growth. After a small increase in output in Q1, on a three-month basis output fell 1.3 percent 3m/3m, the steepest drop in more than five years. And while growth appears decent when looked at on an annual basis, at 2.2 percent y/y, this represents a very sharp deceleration from the 7.7 percent y/y pace seen at the end of last year. 

The latest trade figures reinforced the dim view on industrial activity in Germany. In April, the value of exports declined 0.3 percent m/m, while imports jumped a 2.2 percent m/m to leave the trade surplus declining by more than EUR2 billion to EUR19.4 billion, the joint lowest level since the middle of last year. This comes after a very weak Q1 when according to the national accounts data, volumes of both exports and imports declined by around 1 percent q/q. With export value growth of -2.3 percent 3m/3m in April, we can hardly expect any improvement in Q2.  

Meanwhile, the German DAX slipped 1.00 percent to 12,682.06 by 09:45GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 7.94 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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