Expert Analysis of Today's Market

• The dollar fell against most major currencies after US Q1 GDP was downwardly revised on Thursday. However, a stronger-than-expected Chicago PMI report limited the downside for the greenback. The yen fell and the EUR/JPY approached a record high, as an advance in global stocks boosted investors’ risk appetite, increasing buying of higher-yielding assets funded in loans in Japan. Overall, investors stayed on the sidelines awaiting important data tomorrow.


• The EUR/USD rose today but remains in its narrow recent trading range. The pair is struggling to penetrate the 1.34-handle support. Tomorrow’s ISM manufacturing and employment reports may be a catalyst that could move the pair out of its recent trading range.

Financial and Economic News and Comments

US & Canada

• US Q1 real GDP growth rose at a seasonally adjusted 0.6% annual rate, the Commerce Department said in a Q1 GDP revised estimate, versus the 1.3% rate originally reported last month. Inventories and trade accounted for all the downward revision to GDP growth. Inventory reductions reduced GDP growth by 1.0%, versus an originally reported 0.3%. The trade deficit also exerted a 1.0 point drag on GDP growth, versus an originally reported 0.5 points.


• Housing was a drag of 0.9 points, slightly less than originally estimated. Personal consumption was upwardly revised to a 4.4% growth rate from an originally reported 3.8%. Business investment in equipment, software, and structures was upwardly revised to 2.9% from 2.0%.


• The GDP price index rose at a 4.0% rate, the fastest rise since 1991. The lower inventories make it more likely that GDP will recovery in Q2. Inventories cut GDP growth by more than one percentage point in Q4 2006 and another percentage point in Q1, leaving substantial room for faster production ahead. The trade deficit is also likely to improve in Q2. More worrisome is inflation. The GDP deflator rose at a 4.0% rate in Q1, the fastest since 1991, leaving no room for a Fed interest-rate cut.

• US initial jobless claims fell 4,000 to 310,000 on a seasonally-adjusted basis in the week ended May 26, the Labor Department said. Claims for the May 19 week were revised to 314,000 from 311,000. The 4-week average rose by 1,000 to 304,500. Continuing claims for jobless benefits fell by 52,000 to 2,472,000 in the week ended May 19, the latest week for which such data are available.
  
• Chicago PMI rose to a stronger-than-expected 61.7 in May from 52.9 in April, the National Association of Purchasing Management-Chicago reported. The data indicates the US manufacturing sector is rebounding.


• US house prices for single-family homes rose an average of 4.3% y/y, the smallest gain since the 4.1% increase in Q3 1997, the Office of Federal Housing Enterprise said.


• US construction spending increased 0.1% m/m in April, the Commerce Department said. Private construction spending fell 0.1% and public spending rose 0.7%. Residential spending declined 1.0%, while non-residential spending rose 1.5%.

Europe

• Eurozone harmonized consumer price inflation was steady in May at 1.9% y/y, the rate as seen in April and March, Eurostat reported. This is the ninth consecutive month in which the headline rate was below the European Central Bank’s 2% price target ceiling.


• Germany’s unemployment rate was unchanged at 9.2% in May for the third straight month, the Federal Labor Agency said. The adjusted number of people out of work unexpectedly rose by 3,000 to 3.86 million.


• UK mortgage approvals fell and consumer credit dropped to the lowest in a decade in April. Lenders granted 107,000 loans for house purchases, the lowest in a year and down from a revised 112,000 in March, the Bank of England said. Borrowing by consumers on credit cards, personal loans and overdrafts fell to £498 million ($983 million), the lowest since March 1997.


• UK house prices rose 0.5% m/m to £181,584 ($359,000) in May after a 0.9% m/m gain in April, Nationwide Building Society said.


• ECB Governing Council member Nout Wellink said the eurozone economic growth potential was rising as structural reforms were starting to pay off.


• ECB council member Klaus Liebscher said: “Determined and timely action is needed to secure price stability in the medium term.”

Asia-Pacific

• Australian business investment rose 9.1% q/q in Q1 2007, the Bureau of Statistics said. Meanwhile, rising exports shrank the trade deficit to A$962 million ($792 million) from A$1.63 billion in March, according to a separate report.


• Japanese wages unexpectedly fell for a fifth month. Monthly wages declined 0.7% y/y in April, the Labor Ministry said. A 0.1% increase was expected.


• Japan’s manufacturing PMI fell to 51.4 from 52.3. New orders were at a 29-month low.

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