Friday 6 May 2011

ECB and BoE hold rates, commodities plunge

The ECB's rate of monetary tightening will be slower than some had expected. From Bloomberg on Thursday:

European Central Bank President Jean- Claude Trichet signaled the bank will wait until after June to raise interest rates again, wrong-footing some investors who had expected a quicker move to fight inflation. The euro plunged.

“We are never pre-committed and we can increase rates whenever we judge it appropriate,” Trichet said at a press conference in Helsinki today after the ECB left its benchmark interest rate at 1.25 percent. He refrained from using the phrase “strong vigilance” that would have signaled a June rate increase, saying only that the ECB will monitor inflation risks “very closely.”

The BoE also left interest rates unchanged on Thursday.

The Bank of England kept its benchmark rate at a record low of 0.5 percent today...

However, the relatively dovish signals from two of the most important central banks in the world failed to keep markets up on Thursday. From Bloomberg:

Commodities plunged the most since 2009, led by oil and silver, and stocks posted the biggest three-day drop since March as selling of energy futures drove down equities. The dollar strengthened and Treasuries jumped.

The Standard & Poor’s GSCI index of 24 commodities sank 6.5 percent at 4:32 p.m. in New York and has lost 9.9 percent this week. Oil tumbled 8.6 percent, the most in two years, to $99.80 a barrel. Silver dropped 8 percent, extending the biggest four- day slump since 1983 to 25 percent. The MSCI All-Country World Index of shares in 45 nations fell 1.1 percent. The dollar rose 2 percent versus the euro, making commodities quoted in the greenback more expensive for holders of other currencies.

Economic reports on Thursday were not helpful for market sentiment.

In the US, claims for unemployment benefits rose last week. Bloomberg reports:

The number of claims for U.S. unemployment benefits unexpectedly rose last week, pushed up by auto-plant shutdowns and other unusual events that seasonal variations failed to take into account, the Labor Department said.

Applications for jobless benefits jumped by 43,000 to 474,000 in the week ended April 30, the most since August, Labor Department figures showed today. A spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge, a Labor Department spokesman said as the data was released to the press.

In Germany, factory orders fell in March. Bloomberg reports:

Factory orders in Germany, Europe’s largest economy, unexpectedly dropped in March, led by a slump in demand for investment goods at home and abroad.

Orders, adjusted for seasonal swings and inflation, slipped 4 percent from February, when they rose a revised 1.9 percent, the Economy Ministry in Berlin said in a statement today. Economists had forecast a gain of 0.4 percent, according to the median of 22 estimates in a Bloomberg News survey. In the year, orders rose 9.7 percent, when adjusted for work days.

And in the UK, services slowed in April. Reuters reports:

Britain's dominant service sector slowed more than expected in April, suggesting the economy failed to pick up speed after its sluggish start to the year and giving the Bank of England more reason to keep rates on hold.

The Markit/CIPS headline services PMI index eased to 54.3 in April from 57.1 in March, staying in positive territory for a fourth straight month, but undershooting the 55.7 forecast.

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