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German bunds slump ahead of September producer price index, October manufacturing PMI

The German bunds slumped during European session Monday as investors wait to watch the country’s producer price index (PPI) for the month of September, scheduled to be released on October 23 by 06:00GMT and manufacturing PMI for October, due on October 24 by 07:30GMT.

The German 10-year bond yields, which move inversely to its price, jumped nearly 3-1/2 basis points to 0.465 percent, the yield on 30-year note surged 2-1/2 basis points to 1.082 percent and the yield on short-term 2-year traded nearly 3 basis points higher at -0.622 percent by 10:20GMT.

The European Central Bank’s (ECB) policy meeting concluding on Thursday will be the most notable event this week. The meeting seems unlikely to bring any substantive policy changes. Certainly, the policy statement will reiterate the ECB’s expectation that key interest rates will remain at their present levels at least through the summer of 2019, Daiwa Capital Markets reported in its today’s latest release.

But with Draghi having signalled that the Governing Council would discuss the reinvestment policy by the end of the year, an announcement of measures to introduce greater flexibility in the rules – which might in due course allow for a ‘twist’ operation or other means of containing longer-term yields – might be forthcoming at this meeting. However, we think that is more likely to emerge in December.

In terms of the economic outlook, meanwhile, Draghi will probably insist that – notwithstanding the downside surprise to core inflation in September, continued risks of a tightening of financial conditions and/or deterioration of external demand – the euro area economy has been evolving broadly in line with the ECB’s latest economic forecasts, updated last month. Finally, of course, developments in the BTP market and Draghi’s views on the appropriateness of Italy’s fiscal policy are bound to be one focus of the press conference, the report added.

Meanwhile, the German DAX rose 0.51 percent to 11,612.57 by 10:30GMT, while at 10:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 20.08 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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