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Theme of the Week - June 29, 2008 to July 4, 2008

ECB Raises Rates to 4.25%, but Series of Increases Not Seen: The ECB signaled in their last meeting that they were going to tighten rates, and did so on Thursday. Trichet, in his conference surprised traders that expected a more hawkish stance. Instead Trichet said the ECB has "no bias" to their next move. Higher wage-inflation worries policy makers, but so does a slowdown in the economy and equity markets. The EUR/USD slid 200 off its high of 1.59 and the EUR/JPY fell from its new record high near 169.00.
UK and Europe Show Slipping Services and Manufacturing PMI's: The data is worse for the UK which saw its Manufacturing PMI hit 45.8 (lowest since Dec. '01) and its Services PMI slip to 47.1 (lowest since Oct. '01). The economy, plagued by anemic lending, especially for mortgages, is now seeing the whole economy responding. In the Euro-zone, both sectors were in contraction as well, at 49.2 and 49.1. The US got into the mix, with its measure of services the ISM Non-Manufacturing Index unexpectedly declined to 48.2.

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Sunday, June 29 \| AUD/USD - Aussie Gains Initially Setting New 25-Year High, Then Falters to Greenback: The higher inflation number pushed the Aussie-US Dollar pair broke above 0.9650 to set a new 25-year high at 0.9665. Following 5 am, greenback strength entered the markets, and the pair gave up most of its gains from today's and Friday's session. The nation's exports, especially coal and steel hit new record highs today providing a boom to the economy and the currency. Market Highlights
Region	EST	Indicator	Actual	Forecast	Previous
NZ	6:45pm	Building Approvals	-42.3%		82.1%
		For May Provided by: Statistics New Zealand Official Release: Highlights Official Release: PDF From the Release: "Highlights or May 2008 compared with May 2007: • Consents for new dwellings excluding apartments fell by 664 units, to 1,548. • Consents for new apartments fell by five units, to 105. • Residential building consent values fell $181 million, to $553 million. • Non-residential building consent values fell $36 million, to $356 million. The trend for the number of new dwellings excluding apartments has been declining since June 2007."
UK	7:01pm	Consumer Confidence Index (GfK)	-34	-31	-29
		For June Provided by: GfK Group Official Release: Press Release The index fell 5 points in June to -34, coming close to the lowest level ever recorded. Confidence over the next year fell to a new low, 42 points lower than the same time last year. The index that measures consumers willingess to make major purchases also fell to its lowest ever. From the Release (Rachael Joy from GfK NOP): "This month the Index score continues to tumble and is almost at its lowest level since the survey began in 1974. At -34 it is only 1 point higher than the -35 recorded in March 1990 when the UK was heading into recession. With rising inflation, gloomy forecasts for interest rates and soaring fuel, utility and food prices dominating the front page headlines, it's no surprise that confidence in the general economy is almost in freefall. It seems unlikely that this trend will reverse in the near future"
JPN	7:15pm	Manufacturing PMI	46.5		47.7
		For June The NTC Research/Nomura/JMMA Purchasing Managers Index Manufacturing activity in Japan fell to the lowest level in more than six years in June, as uncertainty over the economic outlook made firms cut back their spending and new orders. The PMI gives an early snapshot of the health of manufacturing and has been in contraction the last 4 readings, and below the 50 boom-bust level for 7 of the last 10 months.
AUS	8:30pm	TDMI Inflation Gauge	0.5%		0.3%
		For June Provided by: Melbourne Institute (Subscription Required) Inflation Gauge y/y: 4.8%, pr. 4.5% (May), 4.3% (Apr), pr. 4.0% (Mar) Inflation in Australia heated up in June increasing 0.5% for the month and 4.8% on the year. It presents a fresh worry to the Reserve Bank of Australia which decides on rates this week. The annual increase of 4.8% is the largest increase in the index, which goes back 5 and a half years. The old record was last month's 4.5%. Higher fuel (up 25% on the year) and rental costs (up 12% on the year) are mostly to blame though they were offset by falls in the prices of vegetables and electronic goods. The central bank raised rates 4 times in late 2007 and early 2008 in order to combat inflation, at a time when market turmoil and weaker growth caused other economies to cut their rates. With high interest rates the Aussie economy may face a period of cooling helping to slow inflation, but for that fuel and energy prices have to also moderate from their rapid pace of increases.
NZ	11:00pm	Business Confidence	-38.7%		-49.7
		For May Provided by: National Bank of New Zealand Official Release: Press Release From the Release: "Another month has come and gone. The June reading of the National Bank Business Outlook eerily resembles that of May. Business confidence has once again nudged higher. A net 39 percent expect worse times over the year ahead, up from a net 50 percent last month. But when we look at the detail, the move appears to lack conviction, and pricing intentions continue to rise. The underlying economy remains very weak. Own activity expectations, which provide a better indication of overall economic growth, remain unchanged from last month with a net 4 percent expecting tougher times. This is the fourth successive month firms’ own activity expectations have been negative. Not since 1988 have we seen firms’ own activity expectations remain so consistently weak. We’ve said it before and we’ll say it again. When this indicator is negative, the economy is moving backwards. Employment intentions continue to ebb lower. A net 12 percent expect labour market conditions to worsen. Investment intentions slipped another notch in the month, with a net 3 percent expecting a decline. Collectively, our composite growth indicator from the survey remains in negative territory. Taking on a more positive tone, we are in no doubt that the seeds of an upswing and the all important realignment in the composition to growth are very slowly being sown. The NZ dollar is starting to correct, although more slowly versus the all important US dollar. If the greenback is going down, we struggle to do the same. The Reserve Bank has moved to an easing bias and rate cuts look to be just around the corner. Fiscal policy is delivering impetus via tax cuts late in the year. But given the combination of global unease, surging oil prices, leverage, and pressure on household budgets from burgeoning food related inflation; the adjustment we are embarking on, and one which we have talked about for some time, will be elongated in nature as the piper is paid."

Monday, June 30 \| GBP/JPY - Pound Falls Sharply vs Yen as Data, Weak Start to Stocks Pressures Pound: The Pound Yen fell sharply today, sliding as much as 280 pips before recovering most of those losses in NY trading. The volatility seen at the end of last week, resumed Monday as oil hit a fresh high and global stocks were on edge. The Pound was also weighed down by its weak consumer confidence and mortgage lending data. EUR/USD - Hits New High, Then Falls to Dollar Strength: The Euro-Dollar rose to a new high above 1.5835 around the time of the CPI release. From there greenback strength pushed the pair about 100 pips off that high, bringing the pair to support at 1.5730. EUR/JPY - Weak Start to European Equities Causes Euro Slide vs Yen: The Euro-Yen continued its losses today as European stocks initially slipped bur recovered towards the end of the European session. The pair slid 170 pips at one point from its intra-day high finding support around the 166.20 level. The last three trading sessions have seen the Euro slide 300 pips from its record high set last Thursday. USD/JPY - Dollar Falls to 2 Week Low vs Yen Near 105.00: The Dollar-Yen pair fell about 130 pips overnight to set a new 3-week low, before paring those gains during the later European and NY sessions. It's the 3^rd day in a row there has been a sharp decline in the pair as risk aversion continues to dominate the markets. The yen also got a boost from credit agency Moody's raising Japan's local-currency debt rating, saying its banks have avoided the worst of the credit crisis. USD/CAD - Greenback Reclaims Last Week's Losses in Today's Session: Greenback strength overnight helped push the US Dollar-Canadian Dollar pair about 130 pips higher than its intra-day low. The move reversed all of the Loonie's gains from last week. Market Highlights Nilsson's Commentary Full report: Dollar Finds Support Video Recap
Region	EST	Indicator	Actual	Forecast	Previous
JPN	1:00am	Housing Starts y/y	-6.5%	-3.7%	-8.7%
		For May Provided by: Ministry of Land, Infrastructure, Transport and Tourism Official Release: Excel Data (.xls) Annualized Starts: 1.072M, forecast 1.113M, pr. 1.151M (Apr), 1.088M (Mar) Construction Orders y/y: -25.2%, pr. -8.4% (Apr), 6.4% (Mar)
UK	4:30am	Index of Services 3m/3m	0.3%	0.3%	0.3% Revised from 0.5%
		Through April Provided by: Office of National Statistics
UK	4:30am	Mortgage Approvals (BOE)	42K	52K	58K
		For May Provided by: Bank of England Net Mortgage Lending: 5.4B, forecast 6.0B, pr. 6.4B (Apr), 6.7B (Mar) Mortgage approvals fell to a fresh record low of 42K in May, down about a quarter from April's 58K. The government began keeping track of the day in 1999. Net mortgage lending grew by £5.4B, also a sharp decline from last month. Banks and building societies continue to tighten their lending standards, withdrawing some mortgage products, as they face troubled financing for credit. With consumers more cautious as well, the housing market has experienced a dearth of potential buyers. Prices for homes have been coming down as a result, putting less money to spend into the pockets of home sellers.
UK	4:30am	Net Consumer Lending	5.4B	7.0B	7.3B
		For May Provided by: Bank of England Net Consumer Credit: £1.4B, forecast £1.0B, pr. £0.9B (Apr), £1.2B (Mar) Net Mortgage Lending: £4.1B, forecast £6.8B, pr. £6.4B (Apr), £6.7B (Mar) Total net consumer lending grew £5.4B in May, compared with growth of 7.3B in April, the weakest expansion since March 2001. Net mortgage fell by £2.7B compared to April's figure to £4.1B, the weakest in 6 years, while credit card lending increased to £1.4B from £1B. That is the highest credit card lending since January 2006. The release shows that mortgage lending is falling off a cliff, which will perpetuate the troubles in the UK housing market. The amount of mortgage approvals fell to a fresh record low of 42K. This was about a a quarter drop on April's figure which was already at a record low of 58K.
EMU	5:00am	Consumer Price Index y/y	4.0%	3.9%	3.7% Revised from 3.6%
		Preliminary Version for June Provided by: EuroStat Official Release: PDF Consumer inflation in the Euro-zone is expected to be 4.0% in June according to the flash estimate issued by Eurostat. the figures was 3.7% last month, and is now double the ECB target of 2%. High inflation has been slowing the Euro-zone economy already, along with high oil prices and a strong Euro. The data will add extra pressure on the ECB to be hawkish on inflation when they are expected to raise rates on Thursday.
CAN	8:30am	Gross Domestic Product	0.4%	0.3%	-0.2%
		For the month of April Provided by: Statistics Canada Currenct: Press Release From the release: Real gross domestic product (GDP) rebounded in April, increasing by 0.4% after declines in February and March. There were increases in manufacturing, wholesale and retail trade as well as the financial sector, and declines in construction, oil and gas extraction and exploration. During the first quarter of 2008, GDP of the manufacturing, retail and wholesale trade industries were affected by some temporary setbacks in the motor vehicle industry and inclement weather. The economy rebounded after a sluggish first quarter that was partially due to poor weather, which affected manufacturing. Manufacturing grew 1.9% in April, partially offsetting previous declines. Motor vehicle sales also came back strong, increasing 7.0% in April. The energy sector however saw a decline of 1.1% in April, and construction declined 0.7%.
USA	9:45am	Chicago PMI	49.6	48.2	49.1
		For June Provided by: Kingsbury May's Release: Summary Page Prices Paid Index: 85.5 pr. 87.5 (May), 82.9 (Apr) New Orders Index: 52.0 pr. 56.1 (May), 53.0 (Apr) Deliveries: 58.8 pr. 51.0 (May), pr. 52.5 (Apr) Employment: 46.7 pr. 41.2 (May), pr. 35.3 (Apr) The Chicago Purchasing Managers' Index, a measure of business conditions in the Midwest region of Illinois, Michigan and Indiana, edged up, beating expectations of a decline. Most components however had slight declines, but the employment index improved notably.
AUS	7:30pm	Manufacturing PMI	47.0		51.2
		For June Provided by: Australian Industry Group (AIG) Official Release: PDF The seasonally adjusted Australian Industry Group-PricewaterhouseCoopers Australian PMI® fell, by 4.2 points in the month, to 47.0, down from 51.2 points in May. From the Release: " ■ Manufacturing activity fell in June, continuing a six-month period of softer performance since the beginning of the year. A weaker global economy, the high Australian dollar and slowing growth in the domestic economy, notably in housing construction, continue to pressure the sector. ■ Production, employment, and new orders all fell solidly in June, while inventory growth remained firm. Supplier deliveries rose marginally. Exports fell for the second consecutive month. ■ Input costs grew strongly again in June, while selling prices growth softened modestly, suggesting some margin squeeze. Growth in wages also eased slightly and for the fourth consecutive month in June. Capacity utilisation fell in line with lower production. ■ Manufacturers cited positive effects on activity from solid mining and mining-related construction demand. On the negative side were weaker orders; skills shortages; raw material costs, especially steel and petrol; slower housing-related demand; and the Western Australian gas outage.
JPN	7:50pm	Tankan Large Manufacturers Index	5	3	11
		For 2nd Quarter Provided by: Bank of Japan Official Release: PDF Confidence among Japan's manufacturers fell to a 4-year low in the 2nd quarter, with profits set to decline for the first time since the 2001 recession. The index fell to 5 points in June, from 11 in March, though it was expected to fall even further. The Japanese economy is straining as consumers pressured by a weaker labor market and higher inflation cut back on spending. Lower sales coincide with higher costs for companies for energy and commodities, eroding profits. With the slowdown that started in the US spreading to the UK and the Euro-zone, Japan's export industry will have to rely on emerging markets such as China and Russia to bolster demand. Companies said they will increase capital spending 2.4%, a poor reading, as they prepare for a slowdown.
JPN	7:50pm	Tankan Non-Manufacturers Index	10	8	12
		For 2nd Quarter Provided by: Bank of Japan Official Release: PDF
JPN	9:30pm	Average Cash Earnings y/y	0.2%	0.7%	0.8% Revised from 0.6%
		For May Provided by: Ministry of Health, Labor and Welfare Wages rose 0.2% in May, the slowest pace this year. This will bode well for Japanese consumers as conditions in the labor market have loosened recently while prices for energy, food and other goods continues to rise. Households have responded by cutting back on spending as much as possible.

Tuesday, July 01 \| AUD/JPY - Yen Takes a Bite Out of Aussie, Following RBA Decision: Japanese stocks led a slight rally in Asian markets, as the Tankan survey was better than feared, while the Aussie was pressured following its dovish interest rate decision. At one point the Aussie-Yen pair was down 150 pips from its intra-day high, but it found support near 100.20. GBP/USD - Pound Reaches $2 For First Time Since April: The Pound-Dollar shrugged off the housing news, as the monthly rate came in better than expected and rallied to touch the 2 to 1 level, for the first time since April. From there, the manufacturing data weighed on the Pound, and the Dollar clawed back some of its losses for the day. EUR/JPY - Euro Faces Volatile Action vs Yen, European Stocks Suffer Once More: Despite the better news from Germany, European stocks were sharply lower as financials suffered and geopolitical tensions between Israel and Iran caused oil prices to test $142 a barrel again. The Euro-Yen has been very volatile recently. After yesterday's steep fall, it recovered to 167.30, but fell again overnight. After retesting its low support near 166.20, the Euro rallied once more in NY trading. USD/JPY - Dollar Falls to Yen Again as US Stocks Weaken: After getting a boost from the ISM data, US equities fell back into negative territory in the early afternoon, with the Dow Jones index was 130 points a little past noon. The Dollar-Yen pair was weaker overnight and the Dollar's gains from the better than expected ISM release were cut down rather quickly as US equities turned negative. EUR/USD - Euro Jumps Above 1.58 in NY Trading: The Euro-Dollar pair rose in overnight trading following the better German data. The Dollar was bolstered as a result of the ISM data, but those gains were short lived. Weakening stocks, along with Ford's announcement that sales for June fell 28% gave the Euro the chance to set a new high near 1.5825. Market Highlights Nilsson's Commentary Full report: Dollar at Support, Awaiting Employment Data Video Recap
Region	EST	Indicator	Actual	Forecast	Previous
AUS	12:30am	Interest Rate Statement	7.25%	7.25%	7.25%
		Provided by: Reserve Bank of Australia Official Release: Statement At its meeting today, the Board decided to leave the cash rate unchanged at 7.25 per cent. The RBA said that financial conditions were tight as a result of moves the Bank had already conducted. There has been easing in credit growth and some signs of easing in the tight labor market. Though inflation will remain high in the short term, the Bank seems to think the current rate is sufficient to bring prices down in the medium term as domestic demand slows. From the Release: "Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time. As a result of earlier decisions by the Board, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year. Conditions in international financial markets remain difficult, with credit concerns resurfacing in the past month. Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, while the inflation outlook remains concerning, the Board’s assessment continues to be that demand growth will be moderate this year. The most recent flow of information has given additional support to that assessment. Inflation is likely to remain relatively high in the short term, and the CPI will be further boosted in coming quarters by the recent rises in global oil prices. Looking further ahead, inflation in both CPI and underlying terms should decline over time, provided demand continues to evolve as expected. Weighing up the available domestic and international information, the Board’s judgement is that the current stance of monetary policy remains appropriate. The Board will continue to evaluate prospects for economic activity and inflation in the light of new information."
UK	2:00am	Nationwide House Prices m/m	-0.9%	-1.1%	-2.5%
		For June Provided by: Nationwide House Prices Official Release: PDF House Prices y/y: -6.3%, forecast -6.4%, pr. -4.4% (May), -1.0% (Apr) Avg. Price: £172,415, pr. £173,583 (May), £178,555 (Apr), £179.110 (Mar) The price of an average home declined 6.3% in June from a year ago. That's the biggest fall since 1992 and added to weak manufacturing data shows that the UK economy is facing a serious slowdown. Banks have really tightened up their lending standards. Yesterday, data showed moregage approvals at a new low, and mortgage lending shrinking by more than £2 billion. Buyers also face the prospect of higher rates for their mortgages and with the overall economy weakening, the potential pool of buyers is smaller. Sellers are competing for their demand by lowering prices. The release talks about the problem the central faces in that it may have to add more pressure on the weak housing market by raising interest rates to contain inflation. However, a quick move to raise rates is not expected. From the Release: "“While we do not expect an early change in the Bank Rate, the implications of inflationary pressure on funding rates are more stark. The two year swap rate, which is the underlying benchmark for the most popular types of mortgage, (two year fixed rate loans) has increased along with market expectations of increases in bank rates and this has resulted in more frequent mortgage repricing. The tightening of credit conditions over previous months along with changing expectations of house price growth and a general weakening in consumer confidence in the economy have hit mortgage demand and led to a severe slowing in the levels of housing market activity. The latest data from the Bank of England shows house purchase approvals fell sharply in May, to 42,000 down from 58,000 the previous month.
GER	2:00am	Retail Sales m/m	1.3%	0.8%	-0.6% Revised from -1.7%
		For May (s.a.) Provided by: Federal Statistics Office (Destatis) Official Release: Press Release Retail Sales y/y: 0.7%, forecast: -1.1%, pr. -0.2% (rec from -1.0%) (Apr), pr. -6.8% (Mar) German retail sales rebounded after 2 months of declines increasing 1.3% on the month and 0.7% on the year. April's total was revised up significantly. The 1.3% monthly increase was about double expectations, but the outlook still is murky for the largest economy in the Euro-zone. Clothing sales made a notable 13.9% increase in sales, while food, beverages and tobacco sales declined 3.0%. The data suggests that consumers in Germany may have set aside fears of a further slowdown and high inflation and proceeded to spend in May, but that may be temporary. Inflation continues to run at a red hot pace, deteriorating consumer confidence and eating into the purchasing power of households. From the release: WIESBADEN – According to provisional results of the Federal Statistical Office (Destatis), turnover in retail trade in Germany in May 2008 was in nominal terms 3.5% and in real terms 0.7% larger than that in the corresponding month of the previous year. The number of days open for sale was 24 in May 2008 and May 2007."
AUS	2:30am	RBA Commodity Index y/y	38.2%		28.6%
		For June Provided by: Reserve Bank of Australia Commodity Index m/m: 7.9%, pr. 6.1% (May), 9.4% (Apr) From the Release: "Preliminary estimates for June indicate that the Index rose by 7.9 per cent (on a monthly average basis) in SDR terms, following an increase of 7.0 per cent (revised) in May. The largest contributors to the rise in June were increases in the prices of coking coal, iron ore, thermal coal and wheat (see below). The prices of nickel, lead and zinc fell. In Australian dollar terms, the Index rose by 7.2 per cent in June following an increase of 4.0 per cent (revised) in May. As indicated in previous months’ releases, the export price data available do not yet fully reflect the strong increases in prices that have occurred for coking coal, iron ore and thermal coal. As a result, preliminary estimates have been incorporated into the Index for April, May and June for these commodities. In previous years, contract price changes have passed through to export prices over several months, and this is also expected to occur this year. The preliminary estimates included for April, May and June incorporate around three-quarters of the anticipated total increase in prices for these commodities. The preliminary estimates will be subject to review as more data become available."
SWZ	3:30am	SVME PMI	54.9	55.1	55.7
		For June Provided by: Credit Suisse Official Release: PDF From the Release: "The SVME Purchasing Managers' Index (PMI) slipped by 0.8 points in June to its current level of 54.9 points. As such, it is still above its long-term average of 54.5 points, and the critical 50-point growth threshold. The latest figure nonetheless marks the lowest index level since August 2005. This fifth fall in the last seven months points to slower expansion in industrial activity. The more subdued trend becomes even clearer if it is smoothed out over several months: while the mean PMI for the first half of 2007 was 62.1 points, it came in at 57.5 points for the first half of the current year – some 7% lower. "
GER	3:55am	Unemployment Rate	7.8%	7.9%	7.9%
		For June (s.a.) Provided by: Federal Labor Agency (for Apr) Unempl. Change (June): -38K, forecast -15K, pr. 4K (May), -7K (Apr) ILO Unempl. Rate (May): 7.4%, forecast 7.4%, pr. 7.4% (Apr) The umemployment rate dropped to its lowest in almost 16-years at 7.8%, also achieved in March. The labor market is showing a healthy sign of resistance to the global slowdown. The total number unemployed stands at about 3.2 million, 38K less than in May.
GER	3:55am	Unemployment Change	-38K	-15K	4K
		For June (s.a.) Provided by: Federal Labor Agency (for Apr) See Unemployment Rate for more info.
EMU	4:00am	Manufacturing PMI	49.2	49.1	49.1
		Final Version for June Germany: 52.6, pr. 53.6 France: 49.2, pr. 51.5 Italy: 46.9, pr. 48.0 Spain: 40.6, 43.8 Manufacturing in the Euro-zone overall remained close to its preliminary estimate from June 23rd. In May, the final version was 50.6, so there is confirmation now of a move into contraction. France's activity fell to its lowest since May 2005, while Italy was at its lowest level since 2001. Spain's activity sank to its lowest level since records begain in 1998. Capsule Comment from Preliminary Release (June 23rd): Activity in the manufacturing and services sectors fell below the 50 boom-bust level separating expansion from contraction for the first time in 5 years. The data suggests that slowdown many have seen in the data already is hitting home with the prospect of an interest rate increase by the ECB also looming for July. Higher fuel prices are causing consumers to buy less durable goods such as automobiles, hampering manufacturing, while a strong Euro is dampening the demand for European exports.
UK	4:30am	Manufacturing PMI	45.8	49.8	49.5 Revised from 50.0
		For June Provided by Chartered Institute of Purchasing and Supply (subcr. req') Prices: 82.1, pr. 62 (May), 61.9 (Apr) Manufacturing activity in the UK took a sharp turn down in June, with the PMI registering a 45.8 - a sign of contraction - compared to a downwardly revised 49.5 in May. Its the lowest level since December 2001. The news reinforces the perception and comments from the BoE that the economy will slow significantly this year. Weakness in manufacturing was also apparent in France, Italy and Spain. Output fell to 43.5 in June from 49.2 in May, with new orders falling to 43.2 from 27.5. Employment declined, registering a 46.5 from 48.8. Prices meanwhile, continued their surge climbing to 82.1, the highest reading ever in the 16 year-old series.
EMU	5:00am	Unemployment Rate	7.2%	7.1%	7.2% Revised from 7.1%
		For May (s.a.) Provided by EuroStat Official Release: PDF The unemployment rate remained at 7.2% in May, as April's jobless rate was revised to 7.2% from 7.1%. This was also the case for March and February. That returns the record low to 7.2%. With inflation climbing, wage growth in Europe may be set to accelerate to 3.3% in the 1st quarter which is a scenario that worries the European Central Bank. ECB policy members have been very clear that inflation expectations have the potential to climb higher if wage increases bring about second-round effects on prices. The bank is set to raise rates to 4.25% this week, as CPI hit 4% for June according to preliminary data.
CAN	8:00am	Holiday: Canada Day
USA	10:00am	ISM Manufacturing Index	50.2	48.6	49.6
		For June Provided by: Institute of Supply Management Latest Relase: Report Prices: 91.5, pr. 87.0 (May), 84.5 (Apr), 83.5 (Mar), 75.5 (Feb) New Orders: 49.6, pr. 49.7 (May), 46.5 (Apr), 46.5 (Mar), 49.1 (Feb) Production: 51.5, pr. 51.2 (May), 49.1 (Apr), 48.7 (Mar), 50.7 (Feb) Employment: 43.7, pr. 45.5 (May), 45.4 (Apr), 49.2 (Mar), 46.0 (Feb) Inventories: 51.2, pr. 48.0 (May), 48.1 (Apr), 44.9 (Mar), 45.4 (Feb) The ISM Manufacturing Index posted a 50.2 in June, bringing the indicator into expansion territory after 4 months of readings below 50. Prices continued to accelerate, hitting 91.5, the highest measure since July 1979, as firms deal with higher input costs. Production and inventories improved, while the employment sub-index declined to 43.7. Whereas the UK and Euro-zone are experiencing contraction in their latest reports, it seems that manufacturing activity in the US may be bottoming out, though it too early to tell. From the Release: "The manufacturing sector showed a slight improvement in June as the PMI registered above 50 percent after four months of decline. While the PMI indicates minimal change is taking place month over month that is hardly the situation. When viewed from the manufacturer's perspective, they are experiencing higher prices for their inputs while demand for their products is slowing. What respondents are saying: "The shock waves from high crude price continue to put pressure on derivative pricing." (Chemical Products) "Business appears to have bottomed out." (Transportation Equipment) "Seeing renewed interest in outstanding quotes." (Machinery) "Volume is normal, and we are able to recover some of the raw material (steel cost) increases." (Fabricated Metal Products) "Commodity bubble is killing profitability." (Food, Beverage & Tobacco Products) "Orders have slowed, and prices for metals are going up." (Computer & Electronic Products)"
USA	10:00am	ISM Manufacturing Prices	91.5	87.1	87.0
		See in ISM Manufacturing Index for more information
USA	10:00am	Construction Spending	-0.4%	-0.5%	-0.1% Revised from -0.4%
		Monthly Change for May Provided by: Census Bureau Spending on construction fell 0.4% in May as residential construction spending fell 1.6% as it did in April. Non-residential construction spending increased 0.3%. Private sector spending dropped by 0.7%, versus a publich sector increase of 0.4% in May. Construction activity has shrank since December and shows no bottom yet. There is still a hefty inventory of unsold homes in the market.
USA	4:00pm	Motor Vehicle Sales	9.9M	10.2M	10.5M
		Domestic Sales for June
JPN	7:50pm	Monetary Base y/y	0.4%	0.0%	-0.9%
AUS	9:30pm	Building Approvals	-6.5%	-3.3%	5.4% Revised from 7.8%
		For May m/m (s.a.) Provided by: Australian Bureau of Statistics (ABS) Building Approvals y/y: 0.2%, forecast 7.2%, pr. 5.2% (Apr), 0.7% (Mar) Australia's home approvals declined 6.5% on the month and are up 0.2% on the year. Approvals have been down 4 of the first five months of the year, as high interest rates put a clamp on investment projects such as homes. A bout of inflation has kept the Bank on the offensive this year, despite signs the economy may be softening. A slowdown in demand may help alleviate some of the price pressures the economy has seen recently. Lending to consumers and businesses by banks and other financial institutions has slowed this year.
AUS	9:30pm	Retail Sales m/m	0.7%	0.1%	-0.1% Revised from -0.2%
		For May (s.a.) Official Release: Australian Bureau of Statistics Retail sales were up 0.7% for May, beating expectations of a slightly positive increase. The shopping spree by consumers will raise eyebrows as the central bank expects domestic demand to cool and bring down inflation. If consumers are able to spend with 12-year high interest rates, policy members may have to consider raising rates again this year. Industries that led the increase include food, recreational goods, and other retail items such as jewelery and cosmetics. A recent tax cut that was introduced may have had a psychological effect, though it will bring consumers about $80 extra per month. The Aussie rose following the news as the data changes perception of how much the economy will cool on its own without extra moves by the RBA members.

Wednesday, July 02 \| AUD/USD - Aussie Boosted By Increased Chance of Rate Hike Following Sales Data: The Australian Dollar rose following its retail sales data as traders factored in the increased chance of another rate hike this year. From a low near 0.9530, the Aussie rallied 100 pips to test the 0.9650 area. EUR/JPY - Euro Snaps Losing Streak vs Yen: The Euro finally managed to end its losing streak against the Yen, climbing overnight after the PPI data. European stocks were also mainly positive during the European session. At the NY open, the pair hit an intra-day high of 168.60 and was receded during NY trading. After finding support yesterday near 166.30, the Euro has rallied more than 200 pips, recovering the ground it held after last Thursday's slide. EUR/USD - Euro Hits New 2 Month High vs Dollar: The Euro-Dollar pair rose to a 2-month high today, as the ADP jobs data shows that the pace of US job cuts has sped up. Tomorrow the US is expected to show a sixth straight month of the economy losing jobs. With the ECB set to raise rates as well tomorrow, the Dollar may be severely tested the rest of the week. USD/CAD - Loonie Strengthens on Weaker US Economy, Jump in Oil Prices: Oil prices rose again after US crude supplies fell last week. Inventories have declined 6 of the last 7 weeks. With the weak jobs report as well, the greenback felt the pressure against the Canadian Dollar. The US Dollar-Canadian pair declined 125 pips from its level prior to the NY open, testing the level at which it opened the week. USD/JPY - Dollar Recovers vs Yen, But Stalls Following ADP Release: Overnight, the Dollar rose against the Yen, following in the wake of the Euro. However, the US jobs and increase in oil prices pressured US stocks, which after opening higher fell into the red by mid afternoon. That pulled the Dollar about 70 pips off its intra-day high. The last 3 sessions have seen higher lows from the pair, a sign the Dollar may regaining its legs after its steep falls to end last week. A lot will rest on tomorrow's data. Market Highlights Nilsson's Commentary Full report: Dollar Falls on ADP Job Forecast Video Recap
Region	EST	Indicator	Actual	Forecast	Previous
UK	4:30am	Construction PMI	38.8	43.1	43.9
		For June Provided by: Chartered Institute of Purchasing and Supply (CIPS) (sub. req'd) Construction activity contracted at the fastest pace with the PMI slumping to 38.8. Continuing credit crunch and economic uncertainty is weighing on the housing market, which has been on a bubble until last year. According to the BoE, house prices have dropped at the fastest pace in June since 1992, and mortgage approvals fell to the lowest level since 1999.
EMU	5:00am	Producer Price Index m/m	1.2%	0.9%	0.8%
		For May Provided by: EuroStat Current Release: PDF PPI y/y: 7.1%, forecast 6.7%, pr 6.1% (Apr), 5.8% (Mar) Energy prices in May pushed Euro Area industrial producer price inflation to an annual pace of 7.2%, the highest since January of 1990 when the records began. Excluding energy, prices are up 0.3% on the month, and 3.8% on the year. Energy costs climbed 4.1% on the month, and 18% on the year. This bolsters the case for the ECB to increase rates tomorrow by 25 bps.
USA	8:15am	ADP Employment Change	-79K	-20K	25K Revised from 40K
		For June Provided by: Automatic Data Processing Official Release: PDF Employment weakness persisted in June, and even spread to the service industry. The 79,000 job cuts was worse than the 20,000 economists had predicted, and May's headline number was revised down. Outlook for employment is pessimistic as indicated by deteriorating sentiments of employers in the Conference Board and Umich Consumer Sentiments surveys. From the Release: " Nonfarm private employment decreased 79,000 from May to June 2008 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change in employment from April to May was revised down from an increase of 40,000 to an increase of 25,000. This month’s decrease in employment was broad based across industrial sectors and suggests continued weakness in employment. Employment in the service-providing sector of the economy declined 3,000, the first decline since November 2002. Employment in the goods-producing sector declined 76,000, with manufacturing employment falling 44,000, marking their nineteenth and twenty-second consecutive monthly declines, respectively.
USA	10:00am	Factory Orders m/m	0.6%	0.4%	1.3% Revised from 1.1%
		For May Provided by: US Census Bureau Orders ex. Transportation: 0.4% Orders ex. Defense: 0.3% Factory orders in the US increased 0.6% in May, following a revised 1.3% increase. Its a modest gain, but may reflect changes in rising prices. Factory orders in May for non-defense capital goods excluding aircraft decreased 0.4%, after rising rising by 3.1% in April. This sub gauge is used as a way to measure capital spending by businesses and shows that weakness remains in manufacturing and the overall economy. Demand for durable goods was flat, while non-durable goods climbed 1.2%. The change here may reflect rising prices for oil and food.
USA	10:30am	Crude Oil Inventories	-2.0M		0.8M