Draghi effectively said “pass” at today’s ECB press conference and the wuro jumped higher in response. Strong US jobless claims were countered by a weak ISM non-manufacturing survey.
ECB’s Draghi Is Passive
The ECB meeting was remarkably passive, given the degree to which European data has deteriorated of late. The lack of a stronger hint at more easing ahead has the euro bouncing back fairly strongly in the wake of the meeting as the market feels that even with the relatively positive US data, Bernanke is at all times a money printer relatively speaking.
Specifically, Draghi was very neutral on inflation (remember that the ECB’s only real mandate has always been a single mandate on inflation, which Trichet was happy to follow to a fault), saying that inflation would likely stay above 2% in 2012 but fall in 2013 and that risks look “broadly balanced,” etc. On growth, Draghi expressed worries about downside risks but was by no means alarmist. On monetary policy, Draghi described the current ECB policy as “accommodative” and that the non-standard measures thus far haven’t yet reached maximum effect. Still, he did say that the ECB will act in a “firm, timely manner.”
Apparently, that timeliness is not now in the ECB’s opinion as this meeting saw no new developments. Draghi repeated his call for new measures to boost growth potential and this underlines the ECB view that it is the politicians’ turn to move now – not the ECB’s. It is likely that the ECB will only swing into action to keep markets orderly and banks from failing or any other similar systemic risk – not to force economic growth.
The euro is in an odd place after this meeting – there is no new hint of easing to inspire fresh waves of euro selling, but neither is there any particularly compelling reason to buy the single currency as we ponder the myriad pressures on the awkward EU framework and whether the periphery bolts en masse or Germany does so first or whether there really is hope of a “transfer union.” A great panel debating the EU’s prospects, by the way, can be seen on the link helpfully provided by ZeroHedge. Note how the equity market generally drooped on the disappointment over no fresh new prospect of a major central bank rushing to print money. That’s the main theme for the moment, as also underlined by the gold market selling off deeply on the day.
Elsewhere
Something went “bump in the night” in Australia, as the bottom dropped out of the services survey to an impressively ugly 39.6, representing a -7.4 drop from the previous month’s data and reminiscent of the rate things deteriorated back in 2008. The aussie remains very weak, though somewhat curiously, the kiwi is even weaker as NZD/USD has taken out the 200-day moving average rather emphatically in today’s trade. It’s impressive that the USD has managed to do this much damage to the aussie and kiwi with the US S&P 500 still trading close to 1400. Imagine if it was closer to 1200 where we would be…
Chart: NZD/USD
The NZD/USD making a big break today as the 200-day moving average was finally taken out with an exclamation point on the day. This came after a long period of going nowhere and opens up a big new area that extends all the way down to 0.7500 or so.
The US jobless claims this week surprised with a very strong reading relative to the last several weeks of data, but the weekly Bloomberg Consumer Comfort survey has dipped rather sharply again over the last couple of weeks from -31.4 two weeks ago to -37.6 for the latest week, though we are still clear of the old -40 to -50 range. Still, confidence bears watching.
The US ISM non-manufacturing survey was out weaker than expected, raining on the very short parade provided by the strong manufacturing survey earlier this week and the stronger claims data today. The sub-indices were broadly lower, with the New Orders taking a slightly chunkier hit than some of the other components (down to 53.5 from 58.8). The Employment Index was modestly lower at 54.2 vs. 56.7 and the prices paid number dropped sharply from 63.9 to 53.5.
Looking Ahead
Tomorrow ‘s main event is the US employment report. It will be interesting to see how risk appetite behaves if we get a weak report – the expectations are likely leaning back to a downside surprise on the payrolls release. EUR/USD is a very different beast from AUD/USD and USD/CAD and other pairs in this environment if that hasn’t already become very clear already (have a peek at the EUR/AUD or EUR/NZD chart, for example).
Weak data might see EUR/USD staying in the range with the greenback gaining against the commodity currencies if risk appetite goes south (relative QE likelihood play with passivist ECB and activist Fed), while strong data might see more of a positive reaction in the dollar versus the euro as it encourages the view that the Fed is on hold for longer and that today’s “hawkish” ECB is less of an issue for a further USD rally. That’s probably a bit too much dissecting of the situation – the USD may be ready to rally almost regardless.
Stay careful out there – particularly as we have a three-day weekend up in London this week and a if you’re a bit superstitious, you may consider fretting the “supermoon” exerting tremendous tidal pulls on the earth over the weekend.
Economic Data Highlights
- Australia Apr. AiG Performance of Services Index out at 39.6 vs.
- China Apr. Non-manufacturing PMI out at 56.1 vs. 58.0 in Mar.
- UK Apr. Nationwide House Prices out at -0.2% MoM and -0.9% YoY vs. +0.5%/-0.3% expected, respectively and vs. -0.9% YoY in Mar.
- Eurozone ECB leaves interest rate unchanged at 1.00% as expected
- US Q1 Nonfarm Productivity out at -0.5% QoQ vs. -0.6% expected and +1.2% in Q4
- US Q1 Unit Labor Costs out at +2.0% QoQ vs. +2.7% expected and +2.7% in Q4
- US Weekly Jobless Claims out at 365k vs. 379k expected and vs. 392k last week
- US Weekly Continuing Claims out at 3276k vs. 3311k expected and vs. 3329k last week
- US Weekly Bloomberg Consumer Comfort Index out at -37.6 vs. -35.8 last week
- US Apr. ISM non-manufacturing survey out at 53.5 vs. 55.3 expected and vs. 56.0 in Mar.