Expert Analysis of Today's Market

• The dollar rose modestly after numerous data on Friday. Unable to penetrate technical levels, the greenback drifted lower after volatile trading. Today’s economic data generally indicated a recovering US economy although the pending home resales index showed continued weakness in the housing sector. Carry trades and equities continued to drive short-term FX prices. The dollar block currencies reached new highs against the yen. The USD/CAD made a new 30-year low. The EUR/JPY is testing resistance at the 164-handle, which so far has held. If this is broken, the pair will rally. The USD/JPY was unable to break resistance in the 122-area. The EUR/USD tested the 1.34 support but unable to penetrate it.

Financial and Economic News and Comments

US & Canada

• US non-farm payrolls rose a higher-than-expected 157K in May, the Labor Department said. All gains stemmed from the service sector, while construction employment was unchanged and manufacturing employment shrunk. The previous two months’ payroll gains were revised 10K lower. Unemployment rate was unchanged at 4.5% and hourly earnings rose 0.3% in May, as expected. The reports suggest the Federal Reserve will hold interest rates steady at 5.25% for the foreseeable future as the economic outlook has brightened.

• The ISM manufacturing business index unexpectedly rose to 55.0 in May from 54.7 in April, the Institute for Supply Management reported. New orders rose to 59.6 versus April’s 58.5. The report indicates a rebound in the manufacturing sector.

• Personal incomes fell 0.1% in April after a 0.8% gain in March that reflected unusually large bonus payments and the exercise of stock options, the Commerce Department reported. The incomes rose 6.0% y/y in April. Personal spending rose a stronger-than-expected 0.5% m/m in April and 3.5% y/y.


• The personal consumption expenditures price index excluding food and energy rose 0.1% m/m in April, bringing the annual rate from 2.1% to 2.0%, which is considered to be the top edge of the Fed’s comfort zone.


• US economic growth should rebound in the course of 2007 after hitting a soft patch in Q1 and the main threat to the economy is inflation, Federal Reserve Board Governor Randall Kroszner said. “I believe that the risks to the inflation outlook are primarily to the upside,” Kroszner said.


• The pending home resales index fell 3.2% to 101.4, the lowest since February 2003, after a revised 4.5% decline in March, the National Association of Realtors said. This indicates another decline in existing home sales as the pending home resales index is a good indicator of the direction in existing home sales.

Europe

• The purchasing managers’ index (PMI) in the eurozone manufacturing sector unexpectedly slipped to 55 from 55.4 in April, its weakest rate in 15 months, Royal Bank of Scotland Group Plc reported. A reading above 50 indicates growth.


• Eurozone unemployment unexpectedly fell in April to 7.1%, the lowest reading since 1993, Eurostat reported.


• UK PMI for manufacturing unexpectedly rose to 54.9 in May from 54.1 in April, the Chartered Institute of Purchasing and Supply and Royal Bank of Scotland Group Plc said. This indicates further expansion in the UK manufacturing sector.

Asia-Pacific

• China’s manufacturing activity rose in May to the highest level since April 2005. The PMI climbed to 54.1 in May from 53.3 in April, CLSA Asia Pacific Markets reported.

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