Euro Area Bond Yields Advanced After Inflation Rebounded In May

Bridgette Randall
31 May, 2024
Frankfurt

The Euro Area bond yields advanced following the rebound in inflation in the currency union for the first time in five months. 

German, French, and Italian bond yields rose to five-month highs after the release of the inflation report. 

The rebound in inflation raised doubts about future rate cuts after a possible rate cut in June, as policymakers may take a wait-and-see approach. 

Investors are still anticipating the European Central Bank to cut rates next week after the policy meeting, but additional rate cuts may or may not materialize till the end of the year. 

 

Eurozone Inflation Rebounded in May 

The annual consumer price inflation in the eurozone rebounded to 2.6% in May from 2.4% in the previous two consecutive months, Eurostat reported Friday. 

The rebound in energy prices and the faster price increase in services contributed to the rebound in inflation. 

Energy prices rose 0.3% after declining 0.6% in the previous month; services prices accelerated to 4.1% from 3.7%; but food, tobacco, and alcohol prices rose at a slower pace of 2.6% compared to 2.8%. 

The core rate of inflation, which excludes food, energy, tobacco, and alcohol, accelerated to 2.9% from 2.7%. 

Among the four large economies in the eurozone, inflation accelerated in Spain to 3.6%, in Germany to 2.8%, in France to 2.7%, and in Italy to 0.8%. 

 

UK House Prices Extend Gains for the Fourth Month in May

UK home prices rebounded 0.4% in May from the previous month after falling 0.4% in April, the Nationwide Building Society reported Friday. 

House prices accelerated to an annual increase of 1.3% in May from 0.6% in April, indicating resilient demand despite affordability pressures. 

House prices rose for the fourth month in a row, supported by wage gains and a weakening of inflation. 

 

Europe Indexes and Yields

The DAX index decreased by 0.3% to 18,449.26; the CAC-40 index fell by 0.2% to 7,962.53; and the FTSE 100 index advanced by 0.3% to 8,256.14. 

For the week, the DAX index declined 1.3% and advanced 3.2% in May. and the CAC 40 index fell 1.6% and 0.1%, respectively. 

The FTSE 100 index declined 0.6% in the week and rose 1.6% in May. 

The yield on 10-year German bonds edged up to 2.69%; French bonds inched higher to 3.19%; the UK gilts edged lower to 4.39%; and Italian bonds inched higher to 3.99%.

The euro edged higher to $1.084; the British pound inched higher to $1.274; and the U.S. dollar gained to 90.60 Swiss cents. 

Brent crude decreased $0.14 to $82.02 a barrel, and the Dutch TTF natural gas rose by €0.77 to €35.60 per MWh.

 

Europe Stock Movers

STMicroelectronics decreased 0.6% to €37.59 after the advanced semiconductor foundry announced its plan to build a new manufacturing facility in Catania, Italy.

Telecom Italia declined 2.2% to €0.24 after the U.S.-based private equity group KKR received unconditional European Union approval to acquire the company's fixed-line network. 

Flutter Entertainment dropped 4.2% to 14,330.0 pence after the online gambling firm appointed a new group chief financial officer. 

Renault SA declined 1.3% to €53.26, and the French automaker announced a joint venture with China-based Geely for the manufacturing of hybrid combustion engines. 

JD Sports Fashion dropped 7.6% to 123.53 pence after the company reported lower-than-expected full-year profits. 

Galliford Try Holdings gained 2.6% to 265.0 pence after the UK-based construction firm won two government contracts worth £101 million.