UPDATE 1-German yields stabilise after previous session rally; U.S. payrolls in focus

Traders will be watching for the U.S. payroll data later in the day for confirmation of whether the U.S. economy is indeed in trouble after Wednesday’s disappointing ADP report, which tends to act as a predictor for the official release on Friday. “A disappointment in today’ s U.S. jobs report could add to the gloom, but after the recent vicious moves a lot may be baked…

* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr

(Adds chart and updates prices)

By Olga Cotaga

LONDON, Sept 4 (Reuters) – German government bondsstabilised on Friday, having rallied the day before on the backof a sell-off in tech stocks and a survey showing the eurozone’s rebound from its deepest downturn on record faltered inAugust.

Traders will be watching for the U.S. payroll data later inthe day for confirmation of whether the U.S. economy is indeedin trouble after Wednesday’s disappointing ADP report, whichtends to act as a predictor for the official release on Friday.

“A disappointment in today’s U.S. jobs report could add tothe gloom, but after the recent vicious moves a lot may be bakedinto the cake already,” said ING analysts in a note to clients.

Economists polled by Reuters expect 1.4 million jobs to havebeen added in August, less than 1.8 million the months before.The unemployment rate, though, is expected to fall to 10.1% from10.9%.

Euro zone yields were not bothered by the fact that ordersfor German industrial goods rose by a weaker-than-expected 2.8%in July, indicating an initial snap back from the coronavirusshock is fading into a slower recovery in Europe’s largesteconomy.

Two European Central Bank monetary policy committee members- François Villeroy de Galhau and Philip Lane – are due to speakon Friday, ahead of the ECB meeting next week during whichanalysts foresee more stimulus being added through the pandemicemergency purchase programme (PEPP).

“If the added stimulus were indeed to materialise in theform of an expanded PEPP envelope, that would be welcome newsgiven that even Germany now plans at least 80 billion euros ofnew debt next year,” ING analysts said.

German 10-year benchmark yield last traded neutral at -0.48%, having fallen on Thursday to a 1-1/2-week low of-0.50%. Two-year yields were also flat at -0.69%after touching a one-month low of -0.71% the day before.

Italian 10-year yields fell 1.4 bps to 1.04%.

(Reporting by Olga Cotaga, Editing by William Maclean and SteveOrlofsky)

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