Services PMI Suggests That Growth Is Moving Up A Gear

The likelihood of a cut in either the refi rate or the deposit rate in connection with today's ECB meeting is, in our view, extremely low - not least after PMIs released across the euro area showed tentative signs of stabilisation across the board. The ECB might present an ABS purchasing programme to support lending to small- and medium-sized companies but we doubt it is ready to give details and the programme might underwhelm, see ECB Preview: The end of monetary easing .

BoE is also unlikely to announce new stimulus today in connection with its last meeting with Mervin King as governor. Recent data including yesterday's service PMI suggests that growth is moving up a gear and for that reason it also looks increasing questionable whether Mark Carney will deliver additional easing when he assumes the BoE governorship.

In the data calendar the most interesting release today is German factory orders. Following two months of strong gains in factory orders, it would be a surprise if there had been no payback in April. The weekly initial unemployment claims in the US will as usual also be interesting as an indicator for the strength of the labour market.

We expect Nationalbanken to follow the ECB and keep rates on hold. March house prices for Denmark are likely to show further stabilisation.

Selected market news

The US ADP report released yesterday showed a disappointing gain of 136,000 in private payrolls which is below our estimate for Friday's employment report. However, ADP has missed actual job growth several times on the downside lately and hence we take the numbers with a pinch of salt. More important is the employment index in the non-manufacturing ISM survey which declined despite an overall gain in the headline index. This leads us to adjust our above-consensus forecast for Friday's nonfarm payrolls to 180,000 from a previous 190,000.

The Fed's Beige Book released yesterday evening showed the economy growing at a 'modest to moderate' pace compared with a 'moderate' pace in the previous Beige Book. This is consistent with some slowing in growth in Q2 which is in line with our forecast. Interesting was the comment that the manufacturing sector expanded in most districts in May - this is not as downbeat as might have been expected following the weak manufacturing ISM survey released on Monday. Otherwise, residential real estate and construction stands out as strong which is in line with other data received lately.

In a WSJ article the IMF admits that it made mistakes when handling the Greek bailout.

In general, risk markets had a bad day yesterday and US and German yields moved lower. This morning the negative sentiment has carried over to Asian markets. JPY/USD is now trading below 100 again after a short spike yesterday while EUR/USD has remained broadly stable.

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