Hawkish Outlook From ECB's Trichet Turns The Euro From Early Losses

Hawkish Outlook From ECB's Trichet Turns The Euro From Early Losses
Thursday May 8, 7:08 pm ET By John Kicklighter, Currency Analyst

Before ECB President Jean Claude Trichet would cross the wires with his persistently hawkish outlook for monetary policy, the euro was on the retreat across the board Thursday morning. The European session was dotted with disappointing German trade and factory activity data. The industrial production number for March proved to be the most discouraging with a 0.5 percent contraction that met expectations for the sharpest contraction in 11 months - helped specifically by a remarkable 12.3 percent tumble in construction activity. Aside from these indicators, top event risk was naturally the ECB rate decision. While the policy body held rates unchanged at 4.00 percent as expected, President Trichet’s public address quieted speculation of an impending dovish turn. In his remarks, the policy maker said inflation was the group’s “highest priority” and that risk was clearly to the upside. He further suggested data pointed to moderate, ongoing growth and that financial market turmoil was putting little constraint on lending with money and credit growth “still vigorous.”

ECB: Will Trichet Back Off From His Hawkish Bias This Week?

ECB: Will Trichet Back Off From His Hawkish Bias This Week?

Tuesday May 6, 12:50 pm ET By Terri Belkas,
Currency Analyst strategist@dailyfx.com

The European Central Bank is widely expected to leave rates steady this week at 4.00%, but the big question for the markets is: will he remain hawkish or focus more on mounting downside risks to growth? Estimates for Euro-zone CPI during April did ease to 3.3 percent from 3.6 percent, but this is still well above the ECB’s 2 percent target, and as a result there’s little doubt ‘price stability’ will be the foremost concern for Trichet. However, if he suggests that price pressures will moderate in the near-term – as they have recently started to do – or that feeble financial market conditions and the US economic slowdown are a major threat the Euro-zone growth, the euro could actually sell-off across the majors on Thursday.

UK consumer confidence falls again to new low – Nationwide

UK consumer confidence falls again to new low – Nationwide

Consumer confidence has plunged to its lowest levels on record as the United Kingdom's economic prospects worsen, the Nationwide building society said. Nationwide's consumer confidence survey for April fell to 70, the lowest figure since polling began in May 2004, and accelerating the survey's downward trend of recent months. The figure is a sharp drop from March's 77, which was a decline of just one point from 78 in February. Analysts polled had forecast a smaller decline in April, to 75. Nationwide said consumer sentiment could worsen further in the months to come. "Food and fuel prices remain high and, with house prices no longer rising, it is unlikely that consumer confidence will pick up very quickly," said Fionnuala Earley, chief economist. "We may have to accept that confidence levels could well worsen before they get better," she added. The drop in April came despite that month's quarter-point cut in interest rates by the Bank of England, the third such reduction since December.

British Pound: Gear Up for Economic Releases

British Pound: Gear Up for Economic Releases

The British Pound slipped against the Euro but remained unchanged against the US dollar as the lack of economic data left investors concentrating on election news. The Labour Party suffered their worst defeat, as voters became hesitant about Gordon Brown’s ability to lead the economy out of its current slump. Brown blamed the current economic situation on the US credit crisis and deteriorating housing market, as he vowed to improve the general health of the economy. On the economic front, there were no releases yesterday, but the pace picks up today, as PMI services and Consumer Confidence figures are expected to decline, in light of the global credit crisis. Wednesday we have Industrial Production and Manufacturing Production figures should slip further, which could lead the pound lower. BoE’s rate decision on Thursday should set the tone for end of week’s trading session, as it is largely anticipated that the central bank will keep rates steady.

Oil Hits Record $120

Oil Hits Record $120

Commodities are rallying, with oil leading the way. Just today, prices surged to a record $120 per barrel. Rocketing crude prices have been a recurring theme in recent months - as stocks fell to risk aversion and the US dollar tumbled, traders were desperate for a refuge destination to protect their assets. Blossoming demand for commodity imports from emerging markets such as India and China offered a rare positive story in an otherwise shaken marketplace, attracting huge inflows of speculative capital and leading prices to balloon higher. Crude has gained 22% since January alone. Energy costs have spurred inflation, depressed consumption, and distorted trade figures in nearly every G7 economy. Just as observers were starting to grapple with the idea of oil reaching $100 per barrel, it became apparent that $200 a barrel had nearly arrived.

Will Non-Farm Payrolls Recover?

The Federal Reserve cut interest rates by 25bp Wednesday evening and hinted that they will pause when they meet again in June. In response to this shift, the market immediately priced in an 85 percent chance that interest rates will be left at 2 percent at the next two monetary policy meetings. Since then the expectations have eased slightly as traders gear up for Friday’s non-farm payrolls report. The sell-off in the US dollar following the FOMC rate decision suggests that many market participants are not necessarily convinced by the hawkish comments from the Federal Reserve. If the labour market continues to weaken, the central bank may have no choice but to pick up where they left off and only hope that slower US demand will be enough to bring down inflation. The level of non-farm payrolls in the month of April will help to determine whether the Federal Reserve will really keep interest rates unchanged in both June and August and where the US dollar is headed next.

Bank of England signals worst is over

Bank of England signals worst is over

The bank’s twice-yearly Financial Stability Report issued on Thursday, says the credit markets “overstate the losses that will ultimately be felt by the financial system and the economy as a whole”. The view represents a big departure from its 2006 and 2007 warnings that risk was underpriced. It added that financial institutions would soon come to see that some assets now “look cheap”. The Pound was trading 1.9700 against the US Dollar and traders were happy to Buy Euros at 1.2600 against the Pound

John Gieve, deputy governor, said: “While there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually  in the coming months.”

In becoming the first big official institution to offer a cautiously optimistic outlook for the financial sector, the bank shrugs off indications of falling house prices, noting that most households have lots of equity in their homes. Figures from Nationwide Building Society on Wednesday showed the first annual fall in house prices for 12 years, with values in April 4 per cent down on their peak six months earlier and 1 per cent lower than a year earlier.