LONDON Aug 14 Bond yields across the euro zone
hit record lows on Thursday and the euro hovered near its
weakest in nine months after Germany reported its economy
unexpectedly shrank in the second quarter, casting doubt on the
region's fragile recovery.
Germany's 0.2 percent contraction came after data earlier
this week showed gross domestic product fell in Japan, Chinese
lending declined and U.S. retail sales stalled.
The setbacks also weighed on global equity markets and crude
oil futures, with the latter trading just off 13-month lows
In addition, the French economy failed to expand for a
second straight quarter. Combined with the threat to growth from
sanctions on Russia, the slowdown in the euro zone's two biggest
economies leave the euro zone's recovery looking increasingly
World stocks pulled away from one-week highs reached earlier
this week. Europe's FTSEurofirst 300 index and
Frankfurt's DAX slipped around 0.3 percent .
France's CAC index fell half a percent.
Analysts now reckon the ECB will have no choice but to
embark on more stimulus if it is to support growth in the euro
Those expectations pushed German 10-year yields to record
lows, touching 0.998 percent. French yields fell
as well, to 1.392 percent, also a record low.
Spanish bond yields reached record lows as well, dropping to
Jonathan Loynes, chief European economist at Capital
Economics said it was now clear that the euro zone was too weak
to tackle peripheral Europe's debt problems or eliminate the
danger of deflation.
"As such, we still believe that the ECB needs to implement
further policy action - probably in the form of full-scale
quantitative easing - to try to bring the euro down and
re-ignite the recovery," Loynes told clients.
The euro hovered near nine-month lows against the dollar
. Sterling also struggled, declining to a four-month low of
$1.6657. The pound has dropped almost 3 percent since
climbing to six-year high in the middle of July.
Further disappointment is likely from data due at 0900 GMT
that is forecast to show that the euro zone economy as a whole
expanded just 0.1 percent in the second quarter. Analysts say
after the German and French numbers even that much growth looks
"The GDP numbers for France and Germany released today were
pathetic, and keep in mind that these numbers do not have any
sanctions stamp on them yet. One can only imagine how far these
numbers could wane once the sanctions effect is factored in,"
said Naeem Aslam, chief market analyst at online brokerage
(Editing by Larry King)