Eurozone periphery bonds gain after composite PMI, benchmark German manufacturing PMI disappoints in July

The Eurozone periphery bonds gained Monday after investors poured into safe-haven assets after reading the weaker-than-expected composite PMI for the month of July. Also, the benchmark Germany’s manufacturing PMI disappointed for the similar period, adding to rise in bond prices.

The benchmark German 10-year bond yields, which moves inversely to its price, fell nearly 1 basis point to 0.49 percent, the French 10-year bond yields slipped nearly 2 basis points to 0.73 percent, Irish 10-year bond yields slumped 3-1/2 basis points to 0.79 percent, Italian also down 3-1/2 basis points to 2.04 percent, Netherlands 10-year bond yields lower by nearly 1-1/2 basis points to 0.61 percent, Portuguese equivalents plunged nearly 5 basis points to 2.88 percent and the Spanish 10-year yields traded 1 basis point lower at 1.45 percent by 08:50 GMT.

Slower growth of manufacturing output and total new orders resulted in a fall in the IHS Markit Flash Germany Manufacturing PMI to a three-month low of 58.3, from June’s 74-month high of 59.6. Nevertheless, the headline figure remained among the highest levels registered over the past six years.

The headline IHS Markit Eurozone PMI fell for a second successive month in July, down from 56.3 in June to a six-month low of 55.8, according to the preliminary ‘flash’ estimate (based on approximately 85 percent of final replies).

Lastly, if the euro remains at or above current levels, it is likely increasingly to have a bearing on the euro area economic outlook, weighing somewhat on GDP growth via net trade and – most notably – likely subtracting more than 0.25ppt from headline CPI around the turn of the year, increasing significantly the chances that inflation will at least temporarily fall below 1.0 percent y/y in the first quarter of 2018.

Meanwhile, the pan-European STOXX 600 index down 0.42 percent at 378.58, German DAX fell 0.46 percent to 12,183.50, France’s CAC 40 slipped 0.28 percent to 5,103.50 and the PSI20 Index traded 0.54 percent lower at 5,267.47 by 09:20 GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 44.00 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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