Daily Market Report 03/05/2013

Thursday was always going to be a very busy day in terms of fundamental data but investors were most certainly focused on the ECB interest rate decision.

Early in the morning, the euro zone manufacturing PMI data was better than expected but overall still highlighting a contraction. This data unexpectedly left the UK leading export growth for the first time in 15 years. The UK’s construction PMI was better than expected although once again still not a sector that is showing growth.

The speculation surrounding the ECB and the interest rate decision finally ended as Mario Draghi calmly explained the decision to cut the base rate by 25 basis points. This is now an historic low for the euro zone. The initial reaction to the announcement was very subtle. This minor reaction can really be attributed to a hefty amount of expectation that the ECB would indeed cut rates in an attempt to stimulate growth.

The real reaction came in Mario Draghi’s press conference where he not only justified the cut by stating that it will help overall lending within the EU but he also hinted at negative interest rates. The euro weakened about 0.75% again the pound and over 1% against the US dollar.

During Thursday afternoon the US strengthened following the reports that initial jobless claims were fewer than expected and the US trade balance had narrowed.

Today the calendar finishes the week with a bang as we look forward to the UK services data – will this also outperform expectations? Euro zone producer price index is forecasted to fall to 0.6% for March but the main focus will be on the job figures from the US.

Following The Fed’s stance this week that they will be accommodative with monetary stimulus depending on economic conditions; the release of today’s non-farm payroll figures and unemployment rate may well determine the next direction for the US dollar.

Key Announcements:

9.28am – GBP – Markit Services PMI (Apr): Expected to increase to 52.5.

10.00am – EUR – EC Economic Growth Forecasts.

10.00am – EUR – Producer Price Index (Mar): Expected to fall to 0.6%.

13.30pm – USD – Non-farm Payrolls (Apr): Expected to improve to 145,000.

13.30pm – USD – Unemployment Rate (Apr): Expected to remain at 7.6%.

15.00pm – USD – ISM Non-Manufacturing PMI (Apr): Expected to fall to 54.