Daily Forex Fundamentals | Written by Saxo Bank | Mar 03 11 09:08 GMT
The ECB rate meeting tops the agenda Thursday as markets await the verdict of Trichet; does the ECB fight the inflationary pressures building or does it do what it can to save the peripheral countries of the Euro bloc?
ECB to ramp up hawk speak?
The Euro has been quite resilient throughout the commotion in the Middle East with various ECB members making noises about the untenable trajectory of inflation in the 17-nation region. The markets are preparing themselves for hikes as they are currently pricing in 98.5 bps (or 1%) within the next twelve months. We are still more dovish on this call though the history of the Trichet-led ECB suggests that the central bank is capable of surprise; e.g. the 25bps hike in July 2008 as the world was in (about to enter) a global recession. The question is whether the ECB will focus on the looming inflation threat or the need for low rates in various Eurozone countries, the peripherals in particular.
The recent data points to even higher inflation in the near term as commodity price gains ripple through the Eurozone econonmy. The CPI flash report suggests inflation of 2.4 percent in February on a year-on-year basis while yesterday's ´report on producer prices showed a jump in inflation there to 6.1 percent in January from 5.3 percent in December.
Today's ECB meeting also provides the council with new forecasts from the staff of economists where the new forecast of inflation is of course key at the moment.
European data today
The ECB meeting is the high point, but the revised GDP report for the fourth quarter or 2010, in which we wil have new information of the components that make up the GDP aggregate, and retail sales, will also be interesting. In particular retail sales may surprise consensus to the upside (we look for 0.6 percent month-on-month vs. a consensus forecast of 0.3 percent) as Germany was out with much better retail sales this morning. Sales at the retail level in Germany jumped 1.4 percent month-on-month in January against expectations of 0.5 percent while December's 0.3 percent decline was changed into a 0.3 percent gain.
Equity Kickoff: US employment data sparked optimism among investors
European stocks will open flat to slightly higher as Wednesday's U.S. employment data showed an improving labour market. Stocks will probably range trade ahead of Friday's non-farm figures unless we see significant changes in Eurozone GDP or retail sales.
The FTSE 100 index futures are unchanged ahead of the opening. Today's economic figures are centred around Eurozone gross domestic product and retail sales (both at 10:00 GMT). Eurozone GDP is expected to come in unchanged quarter-over-quarter from the previous period and retails sales is expected to show a 0.3 percent increase month-over-month. With Brent crude oil prices also slightly lower than USD 115 per barrel, stocks might find some support in today's session despite the continuous tensions in the Middle East.
Yesterday, the S&P 500 index rose 0.2 percent as the ADP employment change in February came in higher than expected at 217K and showed a healthy improvement, ahead of Friday's non-farm figures, and compared to the revised 189K figure for January. The initial reaction to the data was modest in the futures market but as the market opened, the ADP employment figures gave fuel to the gains in U.S. stock indices. An interestingly underlying signal in the ADP report was that small and medium sized businesses hired aggressively in February, which is good news for the U.S. economy. The Federal Reserve's Beige Book also confirmed an improving U.S. labour market but added at the same time that companies are reporting greater ability to pass on rising input costs to consumers and this could signal inflationary pressures going forward, noted the Fed.
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