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German bunds rally after Q4 GDP declines, CPI stays unchanged

The German bunds rallied Wednesday after the country’s fourth-quarter gross domestic product (GDP) declined compared to the previous quarter, while the consumer price inflation for the month of January remained unchanged from that in December.

The German 10-year bond yields, which move inversely to its price, slumped 1-1/2 basis points to 0.73 percent, the yield on 30-year note also fell nearly 1-1/2 basis points to 1.37 percent and the yield on short-term 2-year traded flat at -0.57 percent by 09:05GMT.

After two quieter days at the start of the week, the euro area dataflow picks up today with the flash (second) estimate of Q4 euro area GDP. We expect to see no revisions, with the initial estimates of 0.6 percent q/q and 2.7 percent y/y set to be confirmed. The first GDP estimate for that quarter released in Germany this morning also reported an increase of 0.6 percent q/q, a pace in line with market expectations.

While it was 0.1ppt smaller compared to the (downwardly revised) reading in the previous quarter and somewhat below the levels economic sentiment surveys had suggested, it was still a healthy increase leaving the level of GDP in Q4 2.9 percent higher compared to a year ago and the full-year GDP up by 2.5 percent y/y.

Within the detail, net exports appear to have been the main source of growth, while domestic demand struggled to gain traction for a second consecutive quarter. Indeed, the level of private consumption was disappointingly little changed from the previous quarter when it posted a decrease of 0.1 percent q/q, and investment picture also remained mixed.

Meanwhile, the German DAX rose 0.80 percent to 12,298.27 by 09:15GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 8.26 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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