Expert Analysis of Today's Market

• The dollar fell Monday as June’s Conference Board LEI 0.1% decline signaled further US economic weakness and US stocks were modestly lower despite better-than-expected Bank of America earnings. The GPB/USD was little changed and the pound fell against its rivals as July’s UK house prices posted the first annual decline since 2002 and BOE MPC member David Blanchflower called for an interest-rate cut to support the weakening UK economy. The USD/JPY was lower as US stocks fell modestly. Japan was closed for a holiday limiting Japanese demand for higher yielding assets. The euro and Canadian dollar rose as oil prices rose from a 6-week low as a tropical storm entered the Gulf of Mexico and Iran resisted demands to suspend nuclear research.



• The AUD/USD advanced following three days of consolidating the 25-year high of 0.9848 set last week. The pair rose despite lower-than-expected Q2 Australian producer-price inflation. The market focused on positive growth aspects for the Australian economy. If the Reserve Bank of Australia does not need to raise interest rates further to curb inflation, that will be positive for Australia’s economic growth outlook. There is strong support in the 0.96-area.

Financial and Economic News and Comments

US & Canada

• The Conference Board leading economic indicators index fell 0.1% in June to a reading of 101.7 after a revised 0.2% drop in May, the Conference Board reported. Poor equity performance and depressed jobs data dragged the LEI down in June. The coincident indicators index increased 0.1% in June to 106.9, reversing May’s 0.1% decline. The lagging indicators index fell 0.3% to 111.5, extending May’s 0.2% fall. Overall, the figures show continued US economic weakness, signaling US growth will slow in the second half of 2008.

Europe

• The Rightmove house price index fell to 191.4 in July from 194.9 in June. UK house prices dropped 2.0% y/y to £235,219 ($469,544) in July, the first annual drop since data collection began in 2002, as the squeeze on lending pushed up the number of unsold properties to a record, Rightmove Plc reported. Prices fell 1.8% m/m, the biggest decline since December.

• Bank of England Monetary Policy Committee member David Blanchflower told the Guardian newspaper that the BOE must cut interest rates to support the UK economy, which is headed for a recession that may last more than a year. “We are going into recession and we are probably in one right now,” Blanchflower was cited by the Guardian as saying. “It’s not too late to stop it but we have to act right now.”


• The German economy cooled in Q2 2008 as construction slowed and inflation damped consumer spending, the Bundesbank said. “In spring, the German economy is not likely to have maintained the high level of production in the first quarter,” the bank said in its monthly bulletin. The economy grew 1.5% q/q in Q1 2008, the fastest rate in 12 years.

Asia-Pacific

• The Australian producer-price index increased 1.0% q/q and 4.7% y/y in Q2 2008, down from 1.9% q/q and 4.8% y/y in Q1 2008. Slower PPI gains support the Reserve Bank of Australia’s view that the fastest inflation in 17 years may moderate as the economy cools.

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