In Limbo Between the ECB Decision and the U.S. Jobs Data

May 6, 2011

The ECB’s apparent decision to delay a second interest rate hike until at least July sent the euro down as much as 2.6% intra-day against the dollar on Thursday.  As investors await the other main event of the week, the U.S. Department of Labor April Jobs report, the dollar is unchanged from its close yesterday against the common European currency. The greenback has lost 0.9% against the Aussie dollar, 0.4% relative to the Canadian and New Zealand dollars and 0.1% versus sterling but shows gains of 0.3% against the yen and Swiss franc.

Japanese markets reopened for the first time since Monday.  The Nikkei fell 1.5% and is again below 9900.  The 10-year JGB yield fell six basis points to 1.15%.  German bunds and British gilt yield are down by four and one basis points.

Equities dropped 2.1% in Thailand, 1.5% in South Korea, 0.7% in Pakistan and the Philippines, 0.5% in Indonesia, 0.4% in Hong Kong and 0.2% in China and Australia.  In Europe, the British Ftse has eased 0.4%, but the German Dax and Paris Cac are 0.5% and 0.2% stronger.

Oil prices slumped another 2.0% to 97.85 per barrel, while gold edged up 0.2% but continues to trade under $1500 at $1484.90 per ounce.

The Reserve Bank of Australia released a fairly hawkish quarterly Monetary Policy Statement, proclaiming that “further tightening of monetary policy will likely be required at some point for inflation to remain consistent with the 2-3% medium-term target.”  Forecasts were bumped higher for inflation but lower for economic growth in Australia.

After rising from JPY 130.1 trillion at the end of February to JPY 142.9 trillion at end-March, the Bank of Japan’s balance sheet settled back to JPY 134.6 trillion at end-April.  Japan’s monetary base, however, was 23.9% greater than a year earlier in April, accelerating from 12-month increases of 16.9% in March and 5.6% in February.  The BOJ eased aggressively right after the Sendai earthquake.

Japan’s service-sector purchasing managers index slid further to 35.0 in April after tumbling to 35.3 in March from 49.8 in February and 50.4 in January.  The composite Japanese PMI reading was 35.0 last month.  Prices had their weakest reading in eight months.  Remember that deflation-prone Japan needs to see more evidence of inflation, unlike other countries.

British producer output prices increases 0.8% in April and posted a slightly smaller 5.3% on-year advance after accelerating to 5.6% in March from 5.3% in February.  Core PPI-O rose to 3.4% from 3.1% in February and March.  Producer input prices shot up much more than expected last month, gaining 2.6% from March and 17.0% from a year earlier.  Core PPI-I inflation was 12.2%, up from 10.3% in March.

German industrial production gained 0.7% in March on the heels of a 1.7% increase in February, resulting in a 2.6% first-quarter rise from 4Q10.  Production was 10.9% greater than in March 2010.  These good results follow disappointing orders data released Thursday and surpassed analyst expectations.  Construction jumped 6.2% in March, while factory output increased 0.5%.

There’s been some buzz about Trichet’s comments yesterday on the dollar.  His advocacy of the desirability of a strong and stable dollar seemed more emphatic than before, and it’s believed that euro strength played a part in persuading the ECB Governing Council to put off a second rate hike until at least July.

Australia’s construction index weakened further below the 50 no-change indication to 37.9 in April from 39.4 in March.  Malaysia’s trade surplus widened 7.3% on month to MYR 13.52 billion in March.

Czech retail sales posted a smaller 2.0% on-year gain in March after climbing 6.5% over the year to February.  Spanish industrial production in March was 0.9% lower than a year earlier.  Norwegian factory output was 3.0% greater in March than a year before, but industrial output recorded a 6.5% on-year drop.  Danish industrial production rose 3.1% last quarter and 16.7% between 1Q10 and 1Q11. Hungarian industrial production growth slowed to 9.2% on year in March from 14.6% in February.

The Swiss jobless rate eased to 3.1% in April from 3.3% in March, and the French trade deficit narrowed 10% on month to EUR 5.75 billion in March.

Canada’s jobless rate unexpectedly slid to 7.6% in April from 7.7% in March and 7.8% in April.  Employment growth of 58.3K was four times greater than predicted.  Full-time jobs increased 17.2K on top of a 90.6K leap in March, while a sharp decline of part-time workers in March was partly reversed with a 41.1K increase last month.  Jobs increased 283.1K or 1.7% between April 2010 and April 2011.

Analysts are anticipating a weaker U.S. jobs report for April than reported for March when employment rose 216K and the jobless rate slid to 8.8%.  The data are due at 08:30 local EDT (12:30 GMT).  U.S. consumer credit also gets released today.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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