European releases overnight:
 
Q1      Forecast Actual
U.K. Business Investment          (QoQ)    +0.3%    - 1.4%
U.K. Business Investment           (YoY)    +5.5%    +3.7%

March
Euro-zone Industrial New Orders  (MoM)   - 0.5%    - 1.0%
Euro-zone Industrial New Orders   (YoY)   +4.8%    - 2.5%
Italian Retail Sales                    (MoM)   - 0.2%    - 0.5%
Italian Retail Sales                     (YoY)    +0.6%    - 1.0%

April
U.K. Retail Sales                       (MoM)    - 0.5%    - 0.2%
U.K. Retail Sales                        (YoY)    +4.2%     +4.2%

May
U.K. CBI Monthly Industrial Trends            - 12.0     - 10.0

U.K. retail sales weren’t quite so bad as expected and the CBI reported a better than expected industrial trends but the Q1 business investment says it all. Businesses do not want to invest in expansion right now and that will probably last for the rest of the year as the full impact of inflation and the restraints on household budgets hit sales.

Signs are volatile in mainland Europe but the sizeable drop in industrial new orders into a negative YoY pace also warns of softness to come. The German ZEW and IFO surveys may well have been firm but the outlook still doesn’t look that rosy.

States releases overnight:
                                                  Forecast     Actual
Q1 House Price Index        (QoQ)    - 1.4%     - 1.7%
May Initial Jobless Claims  (17th)       370K       365K
May Continuing Claims       (10th)     3050K     3073K 

The house price index was lower than forecasts but shouldn’t come as a great shock. We all know there is further to go and when a recovery does begin it will do so gradually. With inflation still pointing higher the ability for householders to borrow more for a house will create an additional lag and that supports George Soros’ argument that the downturn is going to last a long time.

With less to support the Euro the Dollar managed to recover yesterday and quite considerably so against the Yen. This appears to be a product of the interest rate markets which are beginning to unwind trades based on a deep U.S. recession. With Dollar–Yen the big loser on the way down due to risk aversion the money seems to be rolling straight back.

Does this mean the end of the Euro rally? I’ll have to check but I still feel that the overnight Dollar strength is a pullback and there should be just a little more weakness to go. However, the next decline should be the last.

Next weeks sees more consumer confidence manufacturing numbers from Europe and these have more chance of still being soft. It should provide a shot in the arm for any belief that the ECB will hike rates.

The only things to watch out for are the preliminary manufacturing and service PMI numbers from Europe which could threaten an earlier demise to the Euro recovery.

It may still take a  couple of months to come through in  numbers but the States should begin posting some signs of stability and probably marginal improvements in their numbers which will spark belief that H2 will indeed see the fiscal stimulus dragging the economy higher.

Dollar cycles against the Europeans are rising for the rest of the year so any short term weakness should soon end and cause further Dollar buying.

More later once the daily analysis has been done…

The following releases are due from Asia due today:

The Bank of Japan is due to publish the minutes of the last monetary policy meeting

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