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ECB Cuts Rates, Jobless Claims Hit New Five-Year Low

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Today's financial recap and tomorrow's financial outlook.

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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 S&P 500 (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 Regeneron (NASDAQ:REGN), Moody's (NYSE:MCO), and Duke Energy (NYSE:DUK).

Twitter: @Minyanville

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