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Inflation prospects push German bond yields off two-month lows
January 3, 2017 / 8:25 AM / 10 months ago

Inflation prospects push German bond yields off two-month lows

LONDON, Jan 3 (Reuters) - German government bond yields nudged up from two-month lows on Tuesday as investors, returning to their desks after holidays across the globe, waited for data expected to show sharply rising consumer prices in the euro zone’s largest economy.

Economists polled by Reuters anticipate preliminary soundings due at 1300GMT to show consumer prices growth at an annualised 1.3 percent in December, up from 0.7 percent in November.

Data from the bloc’s second biggest economy France showed inflation hitting its highest since rate since May 2014 in December.

The likely underlying driver is a rebound in energy prices, but with inflation also expected to be bolstered in 2017 by the policies of U.S. President-elect Donald Trump and signs of faster economic growth in China, the direction of travel is significant.

Long-term inflation expectations in the euro zone, measured by the five-year, five-year forward rate, are near their highest levels in more than a year and close to the ECB’s near 2 percent target, as the central bank prepares to pare back the pace of its money-printing scheme.

“Without any doubt, the highlight of today’s data calendar is going to be the release of the German inflation rate,” said DZ Bank strategist Birgit Figge.

“Until just a few weeks ago, the general consensus was that upside inflation risks were very limited however... the inflation rate scheduled to be published today is likely to reveal a significant uplift.”

DZ Bank expects annualised German inflation of 1.4 percent in December. Euro-wide numbers will be published on Wednesday with economists expecting prices to have grown 1 percent year-on-year.

German 10-year bond yields rose slightly on Tuesday to 0.20 percent, having hit a two-month low of 0.16 percent on Monday.

Most other euro zone equivalents were slightly higher on the day.

A private business survey showed China’s factory activity picked up more than expected in December as demand accelerated, with output reaching a near six-year high.

That came on the heels of data showing manufacturers in Europe ramped up activity at the fastest pace in more than five years in December.

In signs elsewhere of the buoyant growth and inflation outlook, Europe’s blue-chip stock index added another 0.6 percent on Tuesday <.STOXX >, having hit a one-year high on Monday.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (editing by John Stonestreet)

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