2016.05.1606:43:00UTC+00European Bonds Flat on Disappointing Chinese Data, Crude Rallies

The European bonds traded nearly flat on Monday after soft Chinese data pointed to a moderation in the world's second largest economy. Also, rallying crude oil prices drove-out investors from safe-haven buying. Moreover, bund prices are likely to be ruled by the movements in the crude oil market. The benchmark German 10-year bonds yield, which is inversely proportional to bond price stood unchanged at 0.128 pct, French 10-year bunds yield remained steady at 0.479 pct, Italian equivalents rose 1bps to 1.484 pct, Spanish 10-year bonds yield flat at 1.609 pct and Portuguese 10-year bonds yield climbed 1bps to 3.161 pct, Netherlands 10-year bonds yield stood unchanged at 0.351 pct, British 10-year bonds yield fell 1bp to 1.360 pct by 1035 GMT.

The China retail sales rose 10.1 pct y/y in April, less than market estimates of 10.6 pct y/y and fixed asset investment increased by 10.5 pct y/y in January-April, also missed estimates for 11.0 pct y/y. Similarly, April Industrial Production climbed 6.0 pct y/y, lower than the market consensus of 6.5 pct y/y. This raised worries over the strength of a rebound in the world's second-largest economy.

Moreover, the European bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the European Central Bank's target. Today, the crude oil prices jumped more than 1 pct after long-time bear Goldman Sachs said the market had ended almost 2-years of oversupply following global oil disruptions and flipped to a deficit. Reuters in its recent report said that supply disruptions from Nigeria, Venezuela, the United States and China triggered a U-turn in the oil outlook of Goldman Sachs, which long warned of overflowing storage and another looming crash in prices. Venezuela's oil production has already fallen by at least 188,000 bpd since the start of the year as PDVSA struggles to make the investment needed to keep output steady. In the United States, crude production has fallen to 8.8 million bpd, 8.4 percent below 2015 peaks as the sector suffers a wave of bankruptcies. And in China, output fell 5.6 percent to 4.04 million bpd in April, compared with the same time last year. The International benchmark Brent futures rose 1.74 pct to $48.66 and West Texas Intermediate (WTI) jumped 1.69 pct to $46.99 by 0925 GMT.

On Friday, the European Union 2016 first quarter GDP rose 0.5 pct q/q, against market expectation of 0.6 pct, as compared to 0.6 pct in the previous quarter. On annual basis, it climbed 1.5 pct y/y, lower than the market consensus of 1.6 pct rise, from 1.6 pct in last quarter of 1.6 pct.

Meanwhile, the volumes were expected to be thin with the German market closed for a public holiday. The pan-European STOXX 600 index was down 0.50 pct and the FTSE 100 Index down 0.50 pct, the CAC-40 fell 1.05 pct by 1035 GMT.