Yesterday, the focus among investors and traders was on the Federal Reserve. As they had expected, the officials left interest rates unchanged. What they were not expecting was the Fed’s statement, changing the language on inflation. In the statement, the officials added a new term – symmetric – which some investors interpreted as being dovish.
The fed officials used the term because the rate of inflation is soon approaching the target of 2%. As such, they wanted investors to know that the policy will not change going forward, which could mean three more rate hikes this year.
Another focus yesterday was in the EU. Early in the day, data from the European Union suggested that the economy’s growth was softening. The data showed that the economy expanded by 2.5%. This was lower than last month’s 2.7%. it is also lower than December’s 2.8%. This data is an indication that the EU economy is not expanding as investors had hoped.
This data was followed up by today’s data on consumer prices. This is a very important piece of data because it helps ECB officials to decide whether to hike, lower, or leave rates unchanged. The data released showed that the inflation in the EU is not growing as investors had hoped. In April, inflation rose by 1.2% which was lower than the 1.3% investors had hoped for. The core CPI, which excludes volatile products also showed weaknesses. It grew by 0.7%. This was lower than last month’s growth of 1.0% and lower than the 0.9% traders were expecting.
At the same time, the Producer Price Index (PPI) which measures the average changes in prices received by domestic producers for their output remained unchanged at 0.1% during the month. On an annualized basis, the PPI rose by 2.1%.
The data came a week after the ECB held its monetary policy meeting. After the meeting, the officials left rates unchanged and pledged to continue with the current policies. In other words, they will continue the asset purchases until – or after – September. They also pledged to hold rates until – or after – September when they plan to exit the quantitative easing program. The soft economic data will remove the pressure of tightening from the officials.
Yesterday, the region released the spring economic forecast. The document showed that the region is likely to continue the growth pattern, albeit at a slower rate. They however expressed caution on asset valuations and the ongoing issues about trade.
Today and tomorrow, the focus will shift from the Fed and the ECB to the jobs numbers. The government will release the official employment and unemployment figures which are expected to show that more people are getting employed and that wages are growing. Yesterday, ADP numbers showed that private payrolls increased more than expected. Later today, we will also receive the numbers on jobless claims.