Intraday Market Thoughts

What to Look for In Trichet's Conference?

by Ashraf Laidi
May 5, 2011 12:44

The ECB holds rates unchanged at 1.25%.Traders prepare to enter euro buy orders on the first hint of "strong vigilance" language at the 12:45 GMT press conference (see more below). US weekly claims expected to remain at elevated levels above 400K while labor costs data will likely only reflect earlier job gains. Canada manufacturing set to retrace, as US earnings roll on with GM.

European Central Bank will take the lead in policy hawkishness and transparency if Trichet and company follow the script set out in its monthly bulletin. As we indicated in the past, a reference to the ECB monitoring inflation "very closely" - statement directly from the last monthly ECB publication - should be followed with an explicit claim to exercise "strong vigilance." This would solidify expectations for a June rate hike and help reverse today's euro slide back toward $1.50. There are 3 reasons for the likelihood of this scenario playing out today: 1)ECB wants to avoid ambiguity as it transitions to an exit from accommodative stance, and it can afford to do so at this juncture given the recent inflation data; 2)Higher rates and stronger Euro is the "quid" in the latest Portugal bailout "pro quo"; 3)A more hawkish bias solidifies the credentials of the incoming Bundesbank representative to the ECB, helping Germany save face for not taking the presidency with Weber in the fall.

Stateside, weekly jobless claims could temper some of the optimism seen in the overnight futures markets with another 400+k figure. This would mark the 4th consecutive week above the 400K mark after 7 weeks south of that border. Non-farm payrolls loom on Friday, and another poor weekly claims report could spark some tempering of estimates for April job creation. This would add to the caution following the disappointing ADP - a bias we accurately forecasted overnight. Quarterly labor costs/productivity data, also due out at 8:30ET, are lagging indicators. Costs are set to rise to 0.8% from -0.6% and productivty to fall to 1.1% from 2.6%, reflecting Q1's added capacity at the expense of production efficiency. In Fed-speak on the docket, Bernanke and Evans will largely focus on banking regulation - there is little expectation for either to discuss monetary policy.

Economic data out of Canada may dull some of recent optimism following the elections. Monthly building permits are expected to fall by 1.5% m/m after a prior 5-month high of 9.9%. Canada Ivey PMI - the equivalent of US ISM - is set to slow to about 67 from last month's 5-year high just above 73. In the event of renewed post-NFP risk aversion on Friday, a breach of channel resistance at 0.96 in USD/CAD calls up the next inflection point at 0.9720.

CVS and GM headline the pre-market earnings session - expectations for the latter are particularly high given the most recent stellar quarterly report from Ford.

By GG- Staff


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