The Day Ahead: ECB Meeting, Jobless Claims, Treasury Supply

Equity futures are roughly flat this morning after a financial sector-led rally yesterday pushed the Dow up 274 points to beyond the 10,000 mark.

Little data has been released or is expected this week, but the International Monetary Fund did revise its global growth forecast from +4.2% to 4.6% on account of recent growth in Asia and strong consumer spending in the U.S. The forecast for 2011 global growth remains at +4.3%.

Ninety minutes before the opening bell, Dow futures are -8 at 9,972 and S&P 500 futures are down 1.00 point to 1,058.25.

The 2-year note is unchanged at 99-31 yielding 0.629% and the benchmark 10-year Treasury note is -0-02 at 104-10 yielding 2.993%.

The August delivery Fannie Mae 4.0 MBS coupon is unchanged at 101-03 and the August delivery Fannie Mae 4.5 is unchanged at 103-13.

Aside from economic data, markets will also be watching for headlines from the European Central Bank’s latest monetary policy decision. 

Economists surveyed by Reuters expect interest rates to be held at 1.00%. ECB President Jean-Claude Trichet will hold a press conference at 8:30 a.m. in which he’s expected to discuss the euro zone economy, the central bank’s outlook, and his views on price stability.

“The fiscal crisis in Europe isn’t likely to fade anytime soon, and the effects will linger for years as fiscal austerity measures take hold,” said economists at BMO, who expect the ECB to hold rates through 2011. “While there remains some possibility of further easing from the ECB, it doesn’t appear to have an appetite for such measures.”

Key Events Today:

8:30 ― New Jobless Claims averaged 467k per week in June, the worst monthly figure since February and far above the 450k threshold which is indicative of labor growth. Expectations remain dim for the period ending July 3 as economists polled by Reuters expected to see 460k fresh claims for unemployment benefits.

“If the labor market does not show significant improvement in the months immediately ahead, then monetary policymakers will be on hold much longer than what we currently envision and downside risks to our forecast would rise commensurately,” said economists at Deutsche Bank.

“Job gains are expected to accelerate in the second half of this year because fundamentally we have the ingredients necessary for a rebound in hiring, profits are elevated relative to the working population, temporary hiring continues to boom, and firms will begin deploying record cash hoards to replace rapidly depreciating capital.”

11:00 ― The Treasury Department announces the terms of the 3-year, 10-year notes, and 30 year bond auctions scheduled for next week.

3:00 ― Consumer Credit continues to decline on an annual basis (3.2% y/y) but on the monthly basis the pace is slowing, which indicates that the worst is behind us, according to economists at BBVA. They note that credit outstanding fell by $8.8 billion from January to April, versus a $39.4 billion drop in the same period last year. More recently, outstanding credit fell by $5.4 billion in March and then rebounded by $1 billion in April. In May, economists polled by Reuters anticipate a decline of $1.9 billion.

"Several months of consumer credit figures were revised down last month, significantly altering the trend in the series," said economists at Nomura Global Economics. "After the revisions, consumer credit is clearly declining at a steady pace, rather than starting to level off. The decline is now heavily concentrated in the 'revolving' portion of consumer credit, which is mostly credit card debt. We suspect that this mostly reflects weakness in credit demand, rather than tight supply. Given that many consumers remain heavily indebted, we expect consumer credit to continue to decline."

Treasury Auctions:

• 1:00 ― 10-Year TIPS (inflation-protected securities)