European yields are falling as stock prices are moving higher. Some positive earnings reports and strong car sales numbers from China helped to underpin European equity markets, but investors remain cautious and trading volumes, which were already low in Japan overnight are subdued.

The fact that bond futures move in tandem with stocks and that Eurozone peripherals and Gilt futures continue to head for new lows, with the Spanish 10-year falling below 1% for the first time yesterday, highlights that ongoing hope of further stimulus measures not just from the BoE, but also the ECB continues to underpin markets.

In the cash market the 10-year Bond yield is down -0.2 basis points at -0.07% and the Gilt yield down -0.8 basis points at 0.60%. Meanwhile the Spanish down -0.5 basis points at 0.98% and the Portuguese down -1.3 basis points at a new record low of 2.78%.

German Trade Data Came in Weaker than Expected

Data releases included German trade numbers, which came in weaker than anticipated, but still showed a further widening of the nominal trade surplus in the second quarter of the year. The weakening came as exports rose 0.3% after dropping 1.1% in May, compared to imports which rose 1.1% month over month reflecting some increases in domestic demand. Germany reported an aggregate surplus of 21.6 billion Euros in June, down from 22.1 billion Euros in the previous month.

June data meant the seasonally adjusted trade surplus widened to EUR 67.8 billion the second quarter of the year from EUR 61.9 billion in the first quarter. This is nominal data of course, which also reflects exchange rate and oil price developments, but nevertheless, the numbers point to a positive contribution from net exports to overall growth in the second quarter, which should help to compensate for the disappointing production drop.

UK June industrial production data met expectations, rising 0.1% month over month, up from -0.6% in May, while the year over year comparison lifted 1.6% after a 1.4% increase in the month prior. The narrow manufacturing output snapshot contracted by 0.3% month over month in June, below the median forecast for -0.2, while rising by 0.9% year over year after May’s 1.5% increase. The July manufacturing PMI survey has signaled a sharp contraction in the sector, which should be reflected in official data next month.