Expert Analysis of Today's Market

• The dollar rose against the yen but lowered versus other key currencies in NY trading Thursday before Friday’s important employment reports. The yen declined against the euro and dollar on increasing demand for riskier assets. The pound and euro were higher although the Bank of England and European Central Bank, as expected, kept their benchmark interest rates unchanged at 5.75% and 4%, respectively. The Canadian dollar advanced to the highest in a week as investors bought commodity currencies. The aussie and kiwi rebounded from the lowest in 2 months versus the yen as a US equity rebound lured investors back to higher-yielding assets funded by loans from Japan.


• The USD/JPY gained for a second straight day as US equities rebounded. The dollar rose versus the yen at 119.24 in NY trading at 4:12 pm. If resistance at 120 is broken, the USD/JPY will go higher.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims increased 4,000 to 307,000 on a seasonally adjusted basis in the week ended July 28, the Labor Department said. The rise was less than Wall Street forecasts of a 9,000 increase. Claims for the July 21 week were revised to 303,000 from 301,000. The 4-week average fell 3,500 last week to 305,500, its lowest level in 2 months. The less-than-forecast increase indicates the labor market is still expanding.


• US factory orders rose a less-than-expected 0.6% in June on the strength of higher demand for airplanes, following a 0.5% decline in May, the Commerce Department said. Excluding transport, orders fell 0.5% in June after rising 0.7% in May. The increase led by international aircraft sales indicates manufacturing is increasingly dependent on exports as consumer spending slows.


• Treasury Secretary Henry Paulson told Chinese leaders this week to take “immediate action” to lift the yuan’s exchange rate, according to Mark Sobel, Treasury deputy assistant secretary, in testimony to the House Ways and Means subcommittee on trade. “He conveyed a strong message about the need for far more vigorous action by China to correct the undervaluation of the renminbi, take immediate action to lift the renminbi’s value and achieve far greater currency flexibility,” Sobel said in his testimony.

Europe

• The Bank of England kept its key interest rate unchanged at 5.75%, as expected, following 5 increases in less than a year. The BOE noted its latest inflation and output projections would be released in the Inflation Report on August 8 and that the minutes of this week’s meeting would be published on August 15.


• The European Central Bank, as forecast, left its benchmark interest rate unchanged at 4%. ECB President Jean-Claude Trichet said “strong vigilance” was warranted going forward – codeword that have presaged the last 8 interest-rate hikes since December 2005 – signaling a possible rate increase in September. “Rising oil prices, emerging capacity constraints and the potential for stronger wage dynamics imply upside risks to price stability,” Trichet said.


• UK house prices rose at the fastest pace in 3 months in July, led by faster economic growth. The average cost of a home in Britain rose 0.7% in July to £198,915 ($404,000), compared with 0.4% in June, HBOS Plc reported. Prices rose 11.2% in the 3 months through July from a year earlier, the fastest annual pace since February 2005.


• The June industrial producer price index (PPI) in the euro area rose 0.1% m/m, 2.3% y/y, Eurostat reported.

Asia-Pacific

• The People’s Bank of China said it will set up a deposit insurance plan to guarantee savings and protect depositors from bankrupt banks. The PBC wants to shield China’s s 36.9 trillion yuan ($4.87 trillion) of localcurrency deposits from bankrupt banks and maintain public confidence in the financial industry.

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