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Pre-Market Primer: ECB Keeps Rates Still


The ECB is keeping interest rates unchanged. Markets are rising on hopes that Draghi will announce new central bank action.

MINYANVILLE ORIGINAL Asian and European markets are gaining today amidst hopes that Mario Draghi will announce or at least hint that the European Central Bank will take drastic action to stimulate the economy.

The ECB announced this morning that it will keep interest rates unchanged at 1%, disappointing a few economists that expected a stimulative rate cut. Since the last ECB meeting, the eurozone economy has trailed the central bank's forecast. The eurozone's first quarter GDP stayed flat after decreasing 0.3% in the last three months of 2012. On a yearly basis, GDP decreased by 0.1%. German industrial production in April fell by 2.2% on a monthly basis after rising 2.8% in March. Meanwhile, Spain's industrial output nosedived by 8.3%. Bad economic data like this is raising expectations that Draghi will announce major central bank action such as another round of LTRO this morning.

In the US, non-farm productivity fell by 0.9% and labor costs rose by 1.3% on a quarterly basis in the first three months of this year. Stock futures rose this morning, but pared gains as Mario Draghi spoke to reporters in Frankfurt. Dow (^DJI) future are up 0.68% at 12,208.00. S&P 500 (SPY) futures rose 0.79% to 1,295.20, and Nasdaq (^IXIC) gained 0.88% to 2,510.75. The Fed's Beige Book is due to be released at 2:00 p.m. EDT today. The Fed's Dennis Lockhart said today that the "option is on the table" for extending Operation Twist.

Moody's downgraded the credit ratings of six German banks and three Austrian banks today. The cuts affected Commerzbank AG (CRZBY).

Moody's downgrade on German banks is based on "Increased risks to asset quality for the banks affected by today's actions due to their exposures to asset classes prone to further deterioration if downside risks from the euro area debt crisis and the weakened global economic outlook materialize," and "Limited loss-absorption capacity, given the comparatively small equity cushions relative to total assets (not risk-weighted) and low pre-provision earnings. As a result, many German banks have limited capacity to absorb losses out of earnings, raising the potential that capital could diminish in a stress scenario."

Moody's is still reviewing its credit rating on Deutsche Bank (DB).

Oil futures are up 1.16% at $85.27. The Energy Information Administration will report on crude oil stockpiles, which may have increased by as much as half a million barrels.

Financial stocks rose this morning. JPMorgan Chase (JPM) rose 2.0% in the pre-market despite regulators' criticism of the bank's risk management. Since JPMorgan disclosed its several-billion-dollar trading loss, Thomas Curry, the Comptroller of the Currency' office "has been meeting daily with bank management with respect to the bank's response to this situation, to re-evaluate the risk-management activities and controls of the bank and how they applied to its CIO function, and to determine what additional action is necessary," Curry said in a statement.

Bank of America (BAC) and Citigroup (C) both rose more than 1.5% before the bell.

Twitter: @vincent_trivett
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