EU focus: Rally ends as markets await fresh data

Inflation and Egypt vied for market attention on Thursday as investors watched uneasily the ongoing unrest in the Middle East linchpin while waiting for remarks from the heads of both the European Central Bank and the Federal Reserve.
Mr Trichet’s hawkishness should be a sharp contrast to his US counterpart. The Federal Reserve has been notably less concerned about inflationary pressures than its European counterparts.
Ben Bernanke is speaking to the National Press Club in Washington at 1800 GMT.
“We think he will have to depart significantly from the latest Fed statement to really affect the dollar but his comments on inflation will be interesting,” said Gareth Berry at UBS. “He recently said the risk of deflation has ‘receded considerably,’ while the Fed [statement] noted only that measures of underlying inflation have been trending downward.”

Investors are already closely monitoring inflation measures in recent economic data for signs that persistently high commodity prices are beginning to push costs further up the chain.
Investors would have been reluctant in any case to push for a strong market direction ahead of the ECB’s deliberations, but the rising violence in Egypt raised fears that the unrest could worsen and potentially spread elsewhere in the region.
“The economic data continue to come in stronger, and we’re seeing inflation that the market cares about, even if the Fed does not,” said Michael Pond, interest rate strategist at Barclays Capital.
Bulls took heart on Wednesday from the ADP employment survey, which showed 187,000 workers were added to payrolls last month – above expectations.
The real question was how this would translate into Friday’s data. Market expectations are for about 140,000 jobs to have been added.
“ADP has not been a particularly good payrolls predictor recently,” said Rob Carnell at ING. “The stronger data today give us only slightly more comfort in our (upwardly revised) 175,000 forecast for payrolls.”
Today's focus is on ECB rate decision, then on the latest Jobless Claims data. At 1500GMT the ISM Non-Manufacturing Index and Factory Orders are due to come.