The ECB will announce the result of their monthly monetary policy decision today. The answer everyone wants to know is if the European Central Bank will cut their key interest rate by a quarter of a point today. Most analysts believe that an interest rate will be delivered today as economic data from the E.U. continues to show that the continent is struggling with recession and potential headwinds for the forseeable future. While the ECB is mandated to safe guard against inflation, the withering economy of Europe is in the spotlight. Before the interest rate announcement today the Spanish Manufacturing PMI reading will be published along with the Italian reading.
The EUR continues to trade near the higher side of its value even though the possibility of an interest rate cut seems likely. It must be remembered that because of the Federal Reserve’s quantitative easing mandate which essentially is keeping the USD weaker, and the Bank of Japan’s devaluation of the JPY that the EUR is finding it difficult to move much lower. Traders should be ready for an interest rate cut today, but the possibility that a quarter of a point move from 0.75% to 0.50% does not mean that the Single Currency will immediately trade lower. Large financial institutions and investors have likely positioned themselves for such a move already. Thus the biggest move for the EUR might actually occur if no interest rate were to take place – which would be a major surprise.
Gold as of this morning is trading around 1452.00 USD having moved lower in the last twelve hours. Having been in a consolidated position for about 3 trading sessions the precious metal looks to be still facing battles from headwinds caused by bear sentiment. Crude Oil has declined slightly since yesterday. WTI as of this writing is near 91.00 USD per barrel. Commodity prices continue to test ranges and most physical resources are near mid-term low water values. Global demand for raw materials continues to be questioned as the global economy continues to show signs of distress.
Data from the States did not deliver good news on Wednesday. The ADP jobless number missed its estimate yesterday and the previous month’s outcome was revised downward. The ISM Manufacturing PMI also missed its expectation and came in with a reading of only 50.7, which highlights other manufacturing index results which have been negative recently. Under this cloud the Federal Reserve released the FOMC Statement and didn’t surprise anyone as they maintained their current QE policy.
Weekly Unemployment Claims and Trade Balance numbers will come from the States today, but the focus from U.S. investors will be on the ECB interest rate decision and tomorrow’s Non-Farm Employment Change numbers. While today’s ECB interest rate cut may have already been baked into the cake, tomorrow’s jobless number from the States will keep the markets nervous and investors on the edge of their seats. There have been some interesting misses regarding U.S. economic data the past couple of weeks and a negative number tomorrow could impact Wall Street, forex, and the commodities.
Most interesting today is that just a couple of months ago, President Draghi sat on his ECB podium and proclaimed that a recovery would start to be seen come this summer. And now before summer arrives officially he essentially will have to admit that the E.U. economy is near tatters. Telling us what we have known for sometime.
The only surprise today could take place if Draghi and his cohorts decide to remain stubborn and take no action. No matter, end of the day this rate cut will only be a Band Aid on a pair of broken legs. Europe has fallen and it is going to find it hard to get up considering all the damage that has been done the past few years. The financial crisis and bad government policies throughout the continent have equated into no growth and employment problems that could make for a lost decade.