European yields are moving lower, with Gilts outperforming. Following broad gains in Asian Markets European stock markets have moved broadly higher, led by the DAX, which was underpinned by better than expected production data. Risk appetite is improving and oil prices are moving higher, climbing further above USD 42 per barrel. The U.S. jobs report last Friday has renewed confidence in the global economy, but the fact that bond futures are rising again in tandem with stock markets suggest hopes of further stimulus measures are also helping to bolster risk appetite.

Gilt outperformance and the new drop in yields reflects expectations of further easing, after the BoEindicated another cut in rates this year, although Carney seemed to rule out a negative key rate, indicating that the lower bound is slightly above zero, which doesn’t leave the BoE much room for another cut.

German Industrial Production was Stronger than Expected

German industrial production data came in higher than expected, at 0.8% month over month, but even that left production down -1.0% quarter over quarter in Q2 and with orders data pointing to further weakness ahead.

Bank of France business sentiment improved in July, with the overall reading rising to 98 from 97 in the previous month. Finished goods improved as did the level of orders, but contrary to the strong services PMI reading, the Bank of France reported services sentiment falling to 96 from 97, while construction sentiment was unchanged. July survey indicators on both sides of the channel is likely to have been mainly driven by the initial reaction to the Brexit referendum and while the improved or stable sentiment numbers in the Eurozone are a good sign that investment projects won’t be derailed or postponed, it clearly is too early still to give a clear picture of the economic prospects in Europe going ahead.

Eurozone Sentix Investor Confidence improved in August. Sentiment dipped sharply in July, following the Brexit referendum, with the overall reading falling to 1.7 from 9.9, and while August showed some improvement in sentiment, the bounce back to 4.2 still leaves the reading at the second lowest this year. This highlights that while the initial Brexit shock may have overstated corrections in expectations, even a sobering assessment suggests a more difficult situation also in the Eurozone. At least the expectations component is back in positive territory at 4.8, after plunging to -2.0 in July, from 10.0 in June.