Market sentiment was lifted after the ECB at which policymakers left interest rates unchanged but President Draghi signaled further easing possible. The focus has now turned to the Fed. After the disappointing payrolls data last week, speculations for QE3 heightened. Meanwhile, the latest Beige Book continued to describe the economic developments in relatively positive terms. The front-month contract for WTI crude oil climbed for a third consecutive day to a 3-day high of 86.27 before settling at 85.02, up +0.87%, while the equivalent Brent crude contract initially soared to as high as 101.39 before ending the day at 100.64, up +1.82%. The benchmark Comex contract surged to 1642.4, the highest level since May 7, before closing at 1634.2, up +1.07%.
The ECB left the main refinancing rate unchanged at 1% although sovereign debt crisis in the Eurozone intensified. At the press conference, President Draghi unveiled that the decision was made by consensus and indicated a few members favored further rate cut. Yet, Draghi also downplayed the effectiveness of additional easing to the economic and financial environment. Concerning the macroeconomic developments, the ECB acknowledged that a weakening of growth and heightened uncertainty in 2Q12. Policymaker retained that the bloc's economy would recover gradually but the ongoing sovereign debt crisis would have negative impact on credit conditions and dampen the underlying growth momentum. The staff projections for the Eurozone showed that annual real GDP growth would be in a range between -0.5% and 0.3% for 2012 and between 0.0% and 2.0% for 2013. Concerning inflation, the staff forecast that annual HICP inflation would be in a range between 2.3% and 2.5% for 2012 and between 1.0% and 2.2% for 2013.
The latest Fed Beige Book described that the overall economic activity expanded at a moderate, modest or steady pace in 11 of the 12 Districts (the pace of expansion in Philadelphia slowed slightly during the period). The report also stated that lenders in most.
Districts noted an improvement in loan demand and credit conditions. The economic outlook remained positive but those surveyed were slightly more guarded in their optimism. Yet, the language used in the report does not seem that the market conditions would lead to QE3. The focus of today will be on the Fed Chairman Ben Bernanke's testimony before the Joint Economic Committee of Congress.
On the dataflow, the US initial jobless claims probably fell -3K to 380K in the week ended June 2. The BOE would leave the Bank rate unchanged at 0.5% and the asset purchase program at 325B pound. Australia's unemployment rate unexpectedly climbed to 5.1% in May which the Apriil data was revised up to 5.0%. However, the number of payrolls rose by +38.9K, compared with consensus of a -2.2K decline and a downwardly revised +7.0K addition.