ECB raises rates but leaves markets uncertain

The interest rate hike from the European Central Bank yesterday was expected, but it looks like it may be about to get more data-dependent. From Reuters:

The European Central Bank raised interest rates to a near six-year high of 4 percent on Wednesday and showed its readiness to hike again to combat inflationary dangers in a strongly expanding economy.

However, ECB President Jean-Claude Trichet gave limited guidance over how soon the next rate increase would come, or how much tightening remains in store, leaving markets uncertain over the precise course ahead.

A fall in manufacturing orders in Germany in April, the first in three months, could put a damper on further rate hikes by the ECB.

Meanwhile, the Reserve Bank of Australia left its overnight cash rate target unchanged at 6.25 percent yesterday even as the Australian economy grew 1.6 percent in the first quarter, its strongest growth in three years.

The worldwide trend, however, is still towards more tightening, as inflation pressures refuse to go away.

In the US, estimate of first quarter productivity growth was revised down yesterday. Reuters reports:

The Labor Department said on Wednesday that nonfarm productivity...rose at a 1 percent annualized pace in the quarter after a 2.1 percent fourth-quarter advance.

A month ago, the department had estimated productivity grew at a 1.7 percent rate.

The downward revision pushed the government's measure of unit labor costs...higher. The department said labor costs rose at a 1.8 percent pace, not as tame as the 0.6 percent reported earlier...

The first-quarter productivity figure was followed by the Bush administration's downgraded assessment of the economy for this year.

In a forecast, the White House Council of Economic Advisers, Treasury Department and Office of Management and Budget revised down a forecast for 2007 GDP growth to 2.3 percent this year from 2.9 percent.

Meanwhile, in the UK, Reuters reports that a KPMG/REC report on jobs showed that wages are rising at their fastest rate in 7 years while a Nationwide building society survey showed that consumer confidence remains high.

However, the pace of further rate hikes in Japan remains in doubt as the economy continues to show signs of cooling. From Bloomberg:

Japan's broadest indicator of the outlook for the economy signaled for a sixth month that the longest expansion in more than 60 years may slow.

The leading index was 20 percent in April, the Cabinet Office said today in Tokyo, matching the median estimate of 33 economists surveyed by Bloomberg News. A number below 50 indicates the economy may cool in three to six months.