Pre-market in the US, the European Central Bank cut its main
refinancing rate to 0.50% from 0.75% and its marginal lending rate
to 1% from 1.5%. More than half of surveyed economists were
forecasting a rate cut to 0.50%. The important takeaways from the
monetary policy decision were that President Draghi came off as
very dovish, and the ECB intends to work hard to extend credit to
the real economy, not centrally to financial markets. Though the
ECB intends to take as long as necessary to do this, the "whatever
it takes, forever" pledge is a bit different from the monetary
decision by US and Japanese central banks. European markets were
generally unchanged by day's end from the levels pre-meeting.
In the US, the
(INDEXSP:.INX) bounced from yesterday's sell-off and closed up a
full 1%, making a new intraday high. The small-cap
Russell 2000 index
(INDEXRUSSELL:RUT) outperformed the broader indices, rising 1.71%
after underperforming yesterday on poor economic data. Weekly
initial jobless claims for the past week saw a decrease to a weekly
rate of 324,000, a new five-year low. Two of the first quarter's
worst-performing sectors, tech and energy, were the leaders today
with utilities, the best-performing sector, in negative territory.
It would be very difficult to tie the ECB's actions to the positive
performance of US stocks today due to the relative non-reaction
from European stocks, where most of the effects should have been
seen. As well, the euro fell in response, causing the US dollar to
rise in response. So we think the rally was due to other reasons,
such as investors setting up for tomorrow's payrolls report.
Natural gas got walloped after an exceedingly negative weekly
supply report. Natural gas inventories according to the EIA rose 43
billion cubic feet, much more than the 31 BCF estimate. June
natural gas futures lost 6.4% in response. This year there has been
extraordinary demand for natural gas due to seasonally cold weather
in the northern regions.
Tomorrow's Financial Outlook
Tomorrow caps off a very busy week for economic data. Nonfarm
payrolls are expected to grow 140,000 in April, up from 88,000 the
month prior. However, due to a weak ADP private payrolls report on
Wednesday, estimates have steadily brought the consensus down to
140,000 from 155,000 at the beginning of the week. Due to the
119,000 private payroll growth in the ADP report and generally weak
economic data throughout the month, it is more likely that the
market is expecting headline nonfarm payroll growth closer to
100,000 or 110,000.
The other major economic data point is the national ISM services
survey. The survey is expected to decline to a reading of 54.0 from
March's 54.4, which still indicates economic growth.
Global economic data will come from China, the UK, and Switzerland.
China and the UK will release their services PMI and UBS will
release its Swiss Real Estate Bubble index.
Notable US earnings in the pre-market include