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Good morning,

Markets are called lower this morning. This is what's happening today:

  • The European Central Bank yesterday reduced its benchmark rate by 25 basis points to a record low of 0.75%;
  • Bank of England raised the size of its asset- purchase program as the debt crisis in Europe hurts global growth;
  • Last month, the Federal Reserve extended a program of replacing short-term bonds with longer-term debt;
  • The People’s Bank of China cut borrowing costs for a second time in a month. US;
  • Labor Department data today may show hiring slowed in the second quarter to less than half the pace of the prior three months and the unemployment rate held at 8.2%;
  • Data today is forecast to show industrial production in Germany and Spain fell;
  • 10-year Italian debt is yielding 5.768%, 10-year Spanish debt is yielding 6.410% and 10-year Portuguese debt is yielding 10.166%;
  • Brent is trading at $99.52

Europe

The European Central Bank’s step into the world of zero interest rates is fueling speculation it may eventually be forced to follow the Federal Reserve and the Bank of England with large-scale asset purchases.

The ECB yesterday reduced its benchmark rate to a record low of 0.75% and took its deposit rate to zero, with President Mario Draghi saying the cuts may have only a “muted” economic impact. While deflecting questions about further measures such as quantitative easing, Draghi said “there is no feeling that we are running short of policy options” and “we still have all our artillery ready to contain inflationary risks” in either direction.

The ECB’s rate cuts came within 45 minutes of China lowering borrowing costs and the Bank of England restarting its asset purchases, adding to a new round of global monetary stimulus. With Europe’s debt crisis curbing growth across the continent and damping the outlook for the world economy, the ECB was under pressure to ease policy even though Draghi last month voiced misgivings about the effectiveness of a rate reduction.

US

The slow-growing U.S. economy is expected to have created just about 100,000 jobs in June, better than the prior month but still too weak a trend to make a dent in unemployment. Fearful about the US economy, Europe and higher energy costs, employers across a wide variety of industries were expected to have seen little reason to invest in new employees last month.

When reported a month ago, May’s 69,000 nonfarm payrolls shocked financial markets, which were looking for 150,000 new jobs. Economists’ forecasts for June have been tepid, and are running lower than trader whisper numbers of 110,000 to 125,000.

May’s dismal jobs report prompted immediate speculation of further easing by the Federal Reserve, and even though the Fed extended one program at its June meeting, the market is still looking for signs that it could do a third, larger scale “quantitative easing,” or QE3 asset purchase program.

The Thomson Reuters survey shows a consensus of 90,000 nonfarm payrolls, though some raised their estimates in the past few days. The consensus from the Dow Jones survey of economists was bumped up to 100,000 from 95,000 for payrolls; the unemployment rate is expected to remain unchanged at 8.2%.

Stock to watch: Inditex (Price E80.41, Price Target (Citi) E90)

Industria de Diseno Textil, S.A. (Inditex) manufactures and retails apparel. The company operates retail chains under the names Zara, Massimo Dutti, Pull & Bear, Stradivarius, Bershka, Oysho, Zara Home and Uterque in 79 countries around the world. Much of the manufacturing is subcontracted out and takes place in Northern Spain.

For further information on Inditex or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli