Friday, 4 March 2011

ECB looks set to hike rates, US stocks jump

It looks like a hike in eurozone interest rates is coming soon. Bloomberg reports ECB president Jean-Claude Trichet's comments on Thursday.

European Central Bank President Jean-Claude Trichet said the ECB may raise interest rates next month for the first time in almost three years to fight mounting inflation pressures.

An “increase of interest rates in the next meeting is possible,” Trichet told reporters in Frankfurt today after the central bank set its benchmark rate at a record low of 1 percent for a 23rd month. “Strong vigilance is warranted,” he said, adding that any move would not necessarily be the start of a “series”...

The ECB today raised its inflation and growth forecasts.

Inflation will average 2.3 percent this year, up from a December forecast of 1.8 percent and in breach of the ECB’s 2 percent limit, before slowing to 1.7 percent in 2012, the projections show. The 17-nation euro-area economy will expand 1.7 percent this year and 1.8 percent next, up from previous forecasts of 1.4 percent and 1.7 percent, according to the ECB.

Thursday's economic data seem to support the ECB's latest stance.

Reports from Eurostat on Thursday were quite positive. From MarketWatch:

Retail sales in the euro zone saw a monthly rise of 0.4% in January and were up 0.7% compared to the same month last year, the European Union statistics agency Eurostat reported Thursday... Separately, Eurostat made no change to its estimate of euro-zone fourth-quarter gross domestic product. GDP expanded by 0.3% compared to the previous quarter and was up 2% compared to the same period in 2009.

And eurozone PMIs increased in February. Bloomberg reports:

A composite index based on a survey of euro-area purchasing managers in the 17-nation euro region in both industries rose to 58.2 from 57 in January, London-based Markit Economics said today. That’s below an initial estimate of 58.4 released on Feb. 21. A reading above 50 indicates expansion...

A gauge of services advanced to 56.8 in February from 55.9 in the previous month, Markit said. An indicator of manufacturing increased to 59 from 57.3 in January, it said on March 1...

Understandably, the euro rose strongly on Thursday, but stocks also performed well, with the Dow Jones Industrial Average rising 1.6 percent, its biggest gain since 1 December, thanks partly to positive US economic data on Thursday. Bloomberg reports the latter.

Service industries expanded in February at the fastest pace since 2005 and fewer Americans unexpectedly filed claims for jobless benefits, adding to evidence the U.S. recovery is gaining strength.

The Institute for Supply Management’s index of non- manufacturing businesses increased to 59.7 last month from 59.4 in January. A reading above 50 signals growth. The number of initial applications for unemployment insurance payments fell by 20,000 to 368,000 last week, the lowest since May 2008 and fewer than the most optimistic forecast in a Bloomberg News survey, figures from the Labor Department showed...

Another report from the Labor Department today showed worker productivity increased in the fourth quarter at a faster pace as companies sought to pare costs to preserve profits.

The measure of employee output per hour rose at an unrevised 2.6 percent annual rate after a third-quarter gain of 2.3 percent. Labor expenses fell for a second straight year.

Data from the UK on Thursday were not as positive, with services slowing in February. From Reuters:

Growth in the dominant service sector slowed sharply in February after January's weather-related bounce and companies recorded job losses for the fifth month running, a survey showed on Thursday.

February's headline services PMI index fell to 52.6 from January's eight-month high of 54.5, a peak that followed a negative reading in December blamed on snow. The index, compiled by Markit/CIPS, had been expected to fall to 53.5.

Another Reuters report said that house prices fell by the most in a year in February.

House prices in England and Wales fell at their fastest annual rate in more than a year in February, although a rebound in new buyers slowed the fall on the month, a survey showed on Thursday...

Indeed, on an annual basis, house prices fell 2.7 percent last month -- the biggest fall since November 2009, after a 2.2 percent annual decline in January, suggesting that underlying conditions on the housing market remain weak.

No comments:

Post a comment