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The British Pound may see volatility in UK jobless claims expected to rise for the first time since February while the Bank of England is set to release the minutes from the last monetary policy meeting. April's Euro Zone Trade Balance and Swiss Retail Sales are also up for release.

Key Overnight Developments

• Australian Leading Index Rose for 2nd Month But Rate Cuts Still On, Says Westpac
• US Dollar Gains Stall Against Euro, British Pound Despite Asian Stock Losses


Critical Levels

06-17-09

The Euro and the British Pound found footing and rebounded in overnight trading, testing above 1.3860 and 1.6400, respectively. The US Dollar was under pressure despite continued losses on Asian stock exchanges, with the MSCI Asia Pacific Index down -0.9% ahead of the opening bell in Europe.

Asia Session Highlights

Australia's Westpac Leading Index grew at the fastest pace in over a year, adding 0.7% in April. In annual terms, the metric fell -3.5%, the smallest decline since November of last year. Westpac chief economist Bill Evans said that while still deep in negative territory, this [annual] growth rate represents a significant improvement. Evans added that the release is consistent with Westpac's expectations that the economy will shrink 0.6% in the second quarter and contract at an annualized rate of -1.5% through the second half of this year, with positive growth coming back into the picture by the beginning of 2010. Australian GDP unexpectedly grew in the first quarter, boosted by the government's aggressive fiscal stimulus efforts. Perhaps most notably, Evans said that rising unemployment, higher fixed interest rates, and likely economic disappointment offshore will continue to make the case for more [interest rate] cuts in Australia. For their part, the Reserve Bank of Australia has left the door open for additional easing, saying the current inflation outlook gives scope for further cuts if needed.

Related Article: New Zealand Economy May Recover at Year's End, Says RBNZ Chief

Euro Session: What to Expect

The UK labor market is set to show continued signs of weakness in May, with Jobless Claims set to grow by a 60k, the first increase in the number of workers applying for unemployment benefits since February. The Claimant Count, the UK's timeliest measure of unemployment, is set to rise to 4.9%, the highest in nearly 12 years. Although consumer confidence rose for a second consecutive month in May following a recovery in stock prices as well as signs of moderating turmoil in the housing market, rising unemployment may undermine sentiment going forward as lower wages weigh on disposable incomes and trim spending, threatening the standing Bank of England forecast that holds economic growth will rebound 0.2% in 2010. While minutes from the last BOE policy meeting are unlikely to yield much in the way of new insights considering no policy changes were put in place, a restatement of their GDP forecast will be important in the context of the jobs report if the market perceives that Mervyn King and company are too optimistic and may need to expand standing quantitative easing programs. Indeed, the International Monetary Fund expects UK GDP will contract -0.4% next year.

Turning to the continent, the Euro Zone Trade Balance is expected to show a seasonally adjusted -1.5 billion euro deficit in April following a -2.1 euro shortfall in the previous month. The reading falls firmly within the downward trajectory that has led trading terms lower since March 2007. A survey of economists conducted by Bloomberg suggests a deepening external shortfall will slice -1.5% off GDP growth in 2009, the most in 9 years, and another -1.2% in 2010. A growing trade gap implies an outflow of Euros from the regional bloc to their trading partners, suggesting downward pressure on the single currency in the long-term outlook.

In Switzerland, April's annualized Retail Sales figure is unlikely to break the downward trajectory that has held since May of last year. The unemployment rate surged to a three-year high of 3.5% while UBS' leading consumption indicator has fallen to the lowest levels since early February 2005, both pointing to weakness in the retail space. The long-term is also indicative of weakness, with the KOF Institute forecasting private consumption will grow a meager 0.2% this year and shrink -0.4% in 2010. Separately, the June edition of the SECO Economic Forecasts report will give the government's official forecast for growth and inflation.

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