Weak German and China data hits euro, Bunds gain

London — The euro fell below $1.30 to the dollar and German bond futures jumped on Tuesday after data revealed a slowdown in business activity in Germany and China in April, heightening concerns over the global growth outlook. Markit's flash German composite Purchasing Managers' Index (PMI), which measures both manufacturing and service sectors, shrank for the first time in five months in April, although a broader euro zone gauge pointed to the region's recession stabilizing. After the data was released the euro fell 0.6 percent to $1.2985, its lowest level since April 8, while against the yen it tumbled 1.2 percent to ¥128.04. German government bond futures, traditionally sought by investors for safety, hit their highest level since June 1, rising to a peak of 146.69, up 34 ticks. The 10-year cash bond yield dropped two basis points to 1.2 percent. The data has strengthened a belief among many market participants that the European Central Bank will cut its key interest rate at an upcoming policy meeting on May 2. "It makes us more confident of an ECB rate cut in May, but really the ECB should be doing more and thinking of other ways to stimulate growth," said Nick Kounis, head of macro research at ABN-AMRO. The slowdown in Germany came after a reading on China's factory activity showed weaker activity and Monday's news of a dip in the housing market in the United States. "Right now we are in a place of sub-par global growth, and the euro zone is lagging behind, stuck in recession," said Kounis. The yen, which typically rises when investors seek safety during times of heightened concern about the global economy, enjoyed a broad-based rise, with the dollar down 0.5 percent at ¥98.69. The dollar has faced stiff resistance at the ¥100 yen, having stalled when it hit a four-year high of ¥99.95 earlier this month, but most analysts and traders still believe it is on track to scale this peak. "The dollar has tested the psychological 100 yen level twice, and it will eventually be broken," said Niels Christensen, currency strategist at Nordea in Copenhagen. China headwind The economic headwinds earlier hit Asian shares, with MSCI's broadest index of Asia-Pacific shares outside Japan falling 0.5 percent, and Chinese shares posting their worst daily loss in nearly a month. The HSBC report was China's first economic indicator for the second quarter and followed weaker-than-expected growth in first-quarter gross domestic product reported earlier this month, which triggered a sharp market sell-off last week. However, some solid corporate earnings reports from bellwethers like Caterpillar in the US and luxury goods group Richemont in Europe helped offset the growth concerns in European and US stock markets. The pan-European FTSEurofirst 300 index was up 0.4 percent, while the euro zone's blue-chip Euro STOXX 50 index had advanced 0.4 percent in morning trade. Along with Monday's 0.47 percent rise in the S&P 500 index on Wall Street, the gains offset Asian weakness to leave the MSCI world equity index little changed at 357.50 points. The Chinese and German data underlined the growing worries in the commodity markets about the outlook for future demand. June Brent crude was down $1.20 at $99.19 a barrel, while US crude for June delivery was down $1.27 at $87.92. "China and German data disappointed, so it's not a big surprise that oil comes off, and the technical picture points to another push lower," Bjarne Schieldrop, an analyst at SEB. London copper futures fell to a fresh 18-month low of $6,762.25 a ton before snapping back to $6,815 a ton by mid-morning, down 1.8 percent on the day. Gold fell around 1 percent to $1,415 an ounce, hit by news that investors in exchange traded funds are continuing to liquidate positions. A stronger dollar also weighed on prices. Gold has recovered some ground after last week's tumble, but ETF selling sums up weakening confidence in the metal. — Reuters