Expert Analysis of Today's Market

• The dollar traded higher Monday, ahead of this week’s Federal Open Market Committee meeting, on signs the European and Japanese economies are slowing. The yen fell on Japan’s deteriorating business sentiment and relative stability in the US equity market after last week’s steep stock declines. Sterling was pressured as Rightmove reported continued weakness in the UK housing market. The Swiss franc fell after the Swiss government cut its 2009 economic growth forecast.


• The EUR/USD reversed Friday’s gain on further signs the European economy is slowing, reducing European growth advantage. The euro still has a huge yield advantage that is likely to increase as the European Central Bank may hike interest rates while the Fed will keep rates unchanged this Wednesday. The main focus is whether the Fed will highlight inflation risks to the US economy on its accompanying statement. The Fed’s emphasis on inflation could break the 1.54-area support and lead to a drop to the 1.49-1.50 support while the emphasis on recessionary risks will result in a test of the all-time high in the 1.60-area.

Financial and Economic News and Comments

US & Canada

• The Bank of Canada said it will not renew an emergency loan expiring June 26, citing improving credit markets.

Europe

• The European composite purchasing managers index (PMI) fell to 49.5 in June from May’s 51.1, the lowest level since June 2003 and the first drop below 50, the dividing line between expansion and contraction, the preliminary PMI data from the Royal Bank of Scotland Group Plc showed. The European manufacturing PMI fell to 49.1 in June from 50.6 in May and the services PMI slid to 49.5 from 50.6. The June European PMI data reduced bets on a possible ECB July interest-rate hike, but it is more likely that the ECB will raise its benchmark interest rate in July to contain European accelerating inflation.

• Germany’s manufacturing PMI fell to 52.3 in June from 53.6 in May and the services PMI declined to 53.3 in June from 53.8 in May, according to the preliminary PMI data. The figures, above the 50 dividing line between expansion and contraction, show continued growth in German manufacturing and services sectors in June, albeit at a slower pace compared to May.


• The German Ifo business climate index declined to 101.3 in June, the lowest since January 2006, from 103.5 in May, the Ifo Institute for Economic Research reported. The business conditions index fell to 108.3 from 110.1 and the business expectations index fell to 94.7 from 97.2. The June 2007 indexes for business climate, business conditions, and business expectations were much higher, at 107.0, 111.4, and 102.8, respectively. The current June figures indicate that the German current business situation is less favorable than in May and in June 2007 and the surge in oil prices is becoming an increasing burden on the German economy.

• The average price for a UK home fell 1.2% m/m, the most this year in June, to £239,564 ($473,000), as buyers shunned the market, deepening the UK property slump, Rightmove Plc said. Prices in London declined 1.4% m/m.


• The Swiss government cut the 2009 economic growth forecast to 1.3%, less than a March forecast of 1.5% growth, and left unchanged the 1.9% growth forecast for 2008.

Asia-Pacific

• Japan’s business sentiment among manufacturers with more than ¥1 billion ($9.3 million) in capital was -15.1 this quarter, the lowest since the Cabinet Office and Finance Ministry began compiling the data in 2004. A negative number means pessimists outnumber optimists.

• Japan’s supermarket sales declined 1.1% y/y to ¥1.095 trillion in May, mainly due to the rise in food sales, following a 0.8% fall in April and a 1.4% increase in March, the Japan Chain Stores Association said. Sales of food products increased 1.2% y/y to ¥678.41 billion.

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