European yields were slightly higher; as European stock markets post gains ahead of Thursday’s ECB meeting. Oil prices stabilized on Wednesday morning following a draw in inventories reported by the American Petroleum Institute. With the new government in place in the U.K, but not sign of hurried exit negotiations and central banks apparently on hold, investors are becoming complacent. The ECB will likely maintain the wait and see stance for now but falling yields may force the central bank to tweak the QE program again in September.

Today’s German 5-year auction showed a drop in demand as the yield in the auction dropped to a record low of -0.51%, below the -0.4% deposit rate, which acts as the cut off point for purchases under the ECB’s QE program. In the cash market the 10-year Bund yield is up 0.2 basis points at -0.01% and the Gilt yield up 0.9 basis points at 0.81%

The BoE’s Business Conditions Report Reflects Uncertainty

The BoE’s latest summary of business conditions, summarized by nation-wide agents, is ominous, reporting that business uncertainty has risen in the wake of the vote to leave the EU. The survey was conducted between late May and late June, so only a small fraction of the feedback came in after the Brexit vote. The BoE noted that there had yet been no clear evidence of a sharp general slowing in activity. The survey backs up a poll of 1,000 heads of businesses by the Institute of Directors, conducted in the two days after the vote to leave the EU, which found that 24% were planning to freeze recruitment and 5% were planning on making reductions.

Yesterday, meanwhile, both the IMF and European Commission trimmed their respective UK GDP forecasts, the latter to -0.3% year over year for this year, in a Brexit scenario, and to -0.9% year over year next year, and -2.6% year over year in the case of a severe Brexit scenario.

UK unemployment dipped to 4.9% in May, but it’s a pre-Brexit snapshot. The median forecast had been for an unchanged 5.0% outcome. The timelier claimant count figures, for June, painted a slightly different picture, with jobless claimants rising fractionally, with May data revised to 12.2k from -0.4k reported originally. Average earnings came in at a rate of +2.3% year over year in the three months to May, up from 2.0% in April data, and rose by 2.2% year over year with bonuses included, down from 2.3% in the previous month.