BoE, ECB Keep Steady, Draghi's Outlook is Next

BOE kept rates and asset purchases unchanged; ECB holds steady at 1.0%, strong bond auctions lifted the common currency; Italian industrial production rose; Eurozone industrial production declined; UK manufacturing and industrial production both fell. ECB press conference, retail sales and jobless claims are next.

The USD is lower in the ongoing session against all majors. European equities are higher by 1.1% to 1.5% and relative strength winners are AUD and CHF.

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Solid bond auctions from Spain and Italy underpinned the Euro and helped it to recover to 1.2760 after touching 1.27 low earlier during the session. Italy reached its target and sold EUR 12 bln worth of bonds today. May 2012 BOT sold with average yield 1.644% with bid to cover at 1.853 while January 2013 BOT averaged 2.735%, considerably lower from previous 5.952% with bid to cover falling to 1.47 from 1.92.

The Spanish auction was even better as Spain sold nearly EUR 10 bln worth of bonds, significantly above the EUR 4-5 bln target. The biggest auction that reached EUR 4.27 bln was for July 2015 bond that averaged 3.384% with 1.797 cover. Spain was already able to complete 11.6% of its 2012 gross funding needs.

On European data front, Italian industrial production rose 0.3% in November after October's -0.9% contraction and Eurozone's industrial production declined -0.1% m/m and -0.3% y/y.

In the UK, November manufacturing production fell -0.6% y/y after 0.1% growth seen in October while industrial production dropped -3.1% y/y from previous -2.1%.

The BoE chose the wait and see approach, held rates steady at 0.5% and kept QE unchanged at 275 bln. However, falling manufacturing and industrial production imply a higher chance of more QE in the months ahead.

The ECB kept rates unchanged at 1.0% as widely expected. It is not anticipated to announce any new additional easing steps at the 8:30 EST conference.

The New York session starts at 8:30 am ET with ECB press conference that should provide hints about future easing or new liquidity enhancing mechanisms and is likely to set the tone for trading for the rest of the session.

December retail sales are due at the same time and are seen higher at 0.3% from previous 0.2% (core also expected to rise 0.3% from 0.2%). Jobless claims are anticipated marginally higher at 373K from 372K and November business inventories are seen lower at 0.4% from 0.8%.

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