Focus on Draghi’s Press Conference

May 3, 2012

The ECB Governing Council’s statement at 11:45 GMT is expected by analysts to leave policies unchanged, but an element of suspense surrounds the tone President Draghi adopts at the subsequent press conference set for 12:30 GMT.  His recent message has been that the central bank has done all it can, and the ball is now in the court of the regional governments, which must implement fiscal consolidation and structural reforms.  But his contention that Euroland’s recession is stabilizing and likely to be mild has been shaken by data releases since last month’s meeting. Will he hint of more ECB policy support?  Stay tuned.

The dollar has risen 0.9% against the kiwi, 0.4% relative to the Australian dollar, 0.3% versus the yen, 0.2% against the euro and Swiss franc, and 0.1% vis-a-vis sterling.  The dollar is 0.3% softer against the loonie and off 0.1% versus the Chinese yuan.  U.S. Treasury Secretary Geithner reaffirmed the U.S. call for Beijing to let the yuan strengthen further.  China’s position has been that in light of its shrinking trade and current account surpluses, the yuan is now more or less valued appropriately.

Japanese markets were closed today for Constitution Day.  Golden Week holidays continue Friday with the celebration of Greenery Day.

Share prices show gains so far in Europe of 1.3% in Paris, 1.0% in Frankfurt, and 0.5% in London.  This follows losses in the Pacific Rim of 1.1% in New Zealand, 0.9% in India, 0.8% in Vietnam, 0.3% in Hong Kong, and 0.2% in Singapore, Taiwan, and South Korea.

The 10-year German bund yield has firmed one basis point, while the British gilt yield has dipped a basis point.  Spain’s government managed to sell EUR 2.52 billion of 3-year paper, a bit more than planned, but the yield of 4.04% compared to 2.62% in the prior auction.

Labor statistics from New Zealand were much worse than assumed and depressed the New Zealand dollar.  The jobless rate jumped from 6.3% in the final quarter of 2011 to 6.7% in the first quarter of 2012, highest since 4Q10.  On-year growth in jobs slowed to 0.9% from 1.6%.  Labor participation of 68.8%, however, hit a three-year high.

Australia also had a disquieting piece of reported data:  the service sector purchasing managers index slumped to a 3-year low of 39.6 in April from 47.0 in March and a first-quarter average score of 48.5.

The Chinese government’s non-manufacturing PMI reading slipped to 56.1 in April from 58.0 in March but remained well above February’s 48.4 score.

The United Arab Emirates’ purchasing managers index rose 1.2 points to a 10-month peak of 53.5 in April, but analysts warned that more months need to be seen to determine if a better trend is underway.

J.P. Morgan’s global manufacturing purchasing managers index remained near the 50 no change line, edging up to 51.4 in April from 51.1 in March, 51.2 in February and 51.3 in January.

The British service-sector PMI produced the lowest reading since November, a score of 53.3 after 55.3 in March, 53.8 in February and 56.0 in January.  Despite last month’s overall drop, the index was above 50 for a sixteenth straight time, and business sentiment hit a 25-month high.  However, profit margins are been squeezed harder.

In other U.K. data, the Nationwide house price index unexpectedly dropped 0.2% on month in April on top of a 1.0% decline in March, and that kept the 12-month rate of decline at 0.9%.  And the Lloyds business barometer fell by five points to 26 in April.

Ireland was the only euro area economy with a released service-sector purchasing managers survey.  The others arrive tomorrow.  Ireland’s index climbed 1.1 points to 52.2 and reflected decelerating input price inflation.

Producer prices in Euroland increased 0.5% in March on top of gains of 0.8% in January and 0.6% in February.  PPI inflation accelerated to a 5.1% annualized rate of increase between December and March from 1.5% over the final quarter of 2011.  The culprit for this acceleration was energy, which posted sequential month-on-month increases of 2.3% in January, 1.1% in February and 1.4% in March.  In the year between March 2011 and March 2012, energy producer prices rose 8.5%, while all other components of the PPI went up 1.5%, down from 1.6% in the year to February and 3.2% in the year to October.

Romanian PPI inflation eased from 6.0% in January and 5.9% in February to 5.8% in March despite a 1.0% on-month increase in the most recent reported month.  Hungary’s trade surplus of EUR 691 million in February was 65% wider than in January but 20% smaller than a year earlier.

Turkish CPI inflation accelerated to 11.1% in April from 10.4% in both February and March.  PPI inflation slowed, in contrast, to 7.7% from 8.2% in March and 9.2% in February.

Motor vehicle sales in South Africa were 10.5% higher than a year earlier in April.  The volume of retail sales in Hong Kong was 13.4% greater than a year before in March. 

U.S. data to be released today feature weekly jobless insurance claims and quarterly productivity and unit labor costs.  Lockhart, Plosser, and Williams of the Federal Reserve will be speaking publicly.  Once the ECB press conference is past, market attention will turn to the U.S. monthly jobs report on Friday.  The Czech National Bank also has an interest rate announcement scheduled today, and like the ECB, is not expected to change its stance.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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