German bunds tad lower despite disappointment in Ifo business climate index; ECB’s policy decision eyed

The German bunds remained tad lower during European session Thursday after investors have shrugged-off the lower-than-expected Ifo business climate index for the month of October. Investors will now eye the European Central Bank’s (ECB) monetary policy decision, scheduled to be unveiled today by 17:15GMT for further direction in the debt market.

The German 10-year bond yields, which move inversely to its price, rose 1 basis point to 0.399 percent, the yield on the 30-year note climbed nearly 1-1/2 basis points to 1.034 percent and the yield on short-term 3-year surged 2 basis points to -0.650 percent by 09:30GMT.

Sentiment among German firms weakened further this month. The Ifo Business Climate Index fell to 102.8 points in October from 103.7 points in September. Firms were less satisfied with their current business situation and less optimistic about the months ahead. Growing global uncertainty is increasingly taking its toll on the German economy.

Given recent market and political events, and with euro area economic activity, inflation and survey indicators having started to surprise on the downside again over the past few weeks – and yesterday’s flash PMIs for October were particularly disappointing, with the composite PMI down to its lowest in more than two years and the manufacturing output PMI falling to its lowest since 2014 – today’s ECB policy announcements and press conference are likely to be watched more closely than they otherwise might have done, Daiwa Capital Markets reported.

Certainly, Draghi will need to acknowledge that the downside risks to the economic outlook have increased. Indeed, he might go so far as to state explicitly that the risks to the outlook are skewed to the downside, the report added.

Meanwhile, the German DAX rose 0.51 percent to 11,248.89 by 09:40GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at -18.82 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex