Daily Market Update: ECB keeps rates unchanged, revises inflation outlook
The main news yesterday was the European Central Bank (ECB) policy announcement which saw the bank keep its main interest rate unchanged.
The bank opted to keep the deposit rate at -0.40% and headline rate at 0%. ECB President Mario Draghi said that policy makers are willing to take further action if inflation doesn’t pick up decisively, but stressed the need for patience as previously announced stimulus measures take effect. The ECB raised its inflation forecast for 2016 but forecast that price growth would remain below target through 2018. The 2016 inflation projection was raised to 0.2 percent from 0.1 percent while it kept its 2017 forecast at 1.3 percent. For 2016, which is the end of its forecast timeframe, it maintained its projection of 1.6 percent, still short of its goal of close to, but just below 2 percent.
In the UK, the Markit Construction PMI showed that British construction orders fell last month for the first time in more than three years. The survey of construction purchasing managers dropped to 51.2 from 52.0 in April. Economists had expected the index to hold steady. Sterling eased off two-week lows despite continued uncertainty about the June 23rd EU referendum in the UK.
The main data releases yesterday in the US were the ADP Employment and US Initial Jobless Claims which are always closely watched ahead of the important non-farm payrolls number which is released later today. The former saw private-sector employment gains accelerate slightly in May as employers added 173,000 jobs, slightly higher than the 165,000 job gains expected by economists. The latter showed that jobless claims fell slightly in late May to the lowest level in five weeks, showing virtually no change in the low rate of layoffs taking place across the economy.
On the commodity markets, oil was lower as OPEC oil ministers met in Vienna yesterday. Saudi Arabia promised not to flood the oil market with additional barrels, amid a debate about production policy, with Iran insisting on the right to raise output significantly.
Today is a big day on the data front and the Non-Farm Payrolls number at 13.30 will most probably be the most keenly watched as the market looks for more clues about the future direction of US interest rate policy. Market consensus is for 160k new jobs to be created, the same as the actual number last month.