ECB rates up, US employment down

As expected, the ECB raised interest rates yesterday. However, it gave no hint of further rate hikes. Bloomberg reports:

European Central Bank President Jean-Claude Trichet played down prospects of further interest-rate increases, saying the quarter-point move today will help bring inflation back below 2 percent.

"Today's decision will contribute to achieving our objective," Trichet said at a press conference in Frankfurt after the ECB raised its benchmark lending rate to 4.25 percent. Trichet said he has "no bias" on further moves.

Trichet is no doubt mindful of the slowing eurozone economy. Although retail sales in the euro area showed an unexpected increase in May, broader indicators show a clear deceleration in the economy. From Reuters:

Spain's private sector plummeted towards recession in June, with Ireland and Britain not too far behind in surveys which show the hottest house-boom economies of Europe are now slowing hard on the heels of the United States...

The PMI index for Spain's services sector hit a record low of 36.7, and its manufacturing sector reading is also below the 50 mark which is the dividing line between growth and contraction...

The index of British activity dropped to 47.1 in June from 49.8 in May, for a second month in contraction territory.

For the euro zone as a whole, the PMI service sector index fell to 49.1 in June from 50.6 in May, dipping into the red for the first time since June 2003.

Slowing economies, though, did not stop Sweden and Denmark from also raising interest rates yesterday. In Asia, Indonesia raised interest rates for the third consecutive month.

The economic data in the US yesterday were also negative. Bloomberg reports:

Payrolls fell by 62,000 after a 62,000 drop in May that was greater than first reported, the Labor Department said today in Washington. The unemployment rate held at 5.5 percent after soaring the most in two decades in May...

The Tempe, Arizona-based ISM said its index of non-manufacturing businesses...decreased to 48.2, the lowest since January, from 51.7 in May...

Another report from the Labor Department today showed initial claims for unemployment benefits rose by 16,000 to 404,000 last week. The four-week average reached the highest level since October 2005, just after Hurricane Katrina.

Markets though were relatively unfazed by the negativity.

Stocks ended the session mixed and Treasuries dropped. The Dow Jones Industrial Average added 0.7 percent to close at 11,288.5, while the Nasdaq Composite Index lost 0.3 percent to 2,245.4. Benchmark 10-year note yields were at 3.98 percent at 3 p.m. New York time, from 3.95 percent late yesterday.