Euro zone yields edge down as traders await data, U.S. rate outlook clues
Updates prices
By Stefano Rebaudo and Sruthi Shankar
Aug 21 (Reuters) -Euro zone government bond yields were trading in a tight range on Wednesday, the day before the release of key economic data in the euro area and ahead of a meeting of central bankers in Jackson Hole, Wyoming, on Friday.
The market will scrutinise the minutes from the U.S. FederalReserve’s July meeting, due late Wednesday, for any indication of a larger cut than 25 basis points (bps) at one of the remaining three gatherings of the year.
The euro zone'sgovernment bond will face a reality check on Thursday after tracking perceptions of risks in the U.S. economy and its impact on the Federal Reserve monetary policy in the last couple of weeks.
Analysts said a decline in euro zone countries' August flash PMIs would cast doubt over prospects for the area's growth rebound, setting the stage for downward revisions to the ECB's growth forecasts.
Meanwhile, an upside surprise in the second quarter of the euro zone'snegotiated wages indicator could stoke concerns around inflationary second-round effects.
The German 10-year bond yield DE10YT=RR, the benchmark for the bloc, dropped one basis point (bp)at 2.22%, following marginal declines in the past three sessions. Yields move inversely to prices.
BofA analysts said early this week that future data will likely determine whether the Federal Reserve cuts by 50-75 bps this year or by 150 bps or more.
"Yet there is a chance that investors could be disappointed by the comments (from Fed Chair Jerome Powell)if there are any references to the stickiness of inflation," said Guy Stear, head of developed marketsstrategy at Amundi Investment Institute.
Amundi expects the Fed to cut rates by 75 bps in 2024.
The federal funds futures market has priced in about 97 bps of cuts in 2024, down from about 150 bps a few weeks ago at the height of the panic earlier this month, driven by the soft July U.S. nonfarm payrolls report.
Money markets discounted around 65 bps from the European Central Bank EURESTECBM3X4=ICAP by year-end.
Investors will also peruse a speech from ECB chief economist Philip Lane at the Jackson Hole gathering.
"Lane is probably not going to give much new information because the ECB still has one important inflation print to watch that's at the end of next week," said Piet Haines Christiansen, chief analyst at Danske Bank.
"Also, this triangulation that (ECB president Christine) Lagarde and the ECB have stressed on - profits, productivity and wages - we still have very important pieces to that," he added.
Christiansen expects the ECB not to ease its monetary policy in September.
Italy’s 10-year yields IT10YT=RR fell 1.5 bps to 3.59%.
Reporting by Stefano Rebaudo and Sruthi Shankar in Bengaluru; Editing by Bernadette Baum and Angus MacSwan
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