• The dollar and yen fell on Monday as global manufacturing improved more than expected. China and US manufacturing data rose, adding to signs of a global economic recovery. Risk appetite increased and stocks rallied. The S& P 500, exceeding 1,000 for the first time since November, rose 15.15 to 1,002.63. The dollar index broke the important 78 support. The yen dropped versus all of its major counterparts. The euro gained as the eurozone manufacturing contraction eased more than estimated. Commodity prices rose as China's manufacturing PMI expanded for a fourth consecutive month. The Australian dollar rose to the highest level since September and the Canadian dollar advanced to the highest level since October.
  • The GBP/USD climbed to the highest level since October on recovery optimism after the UK manufacturing PMI indicated manufacturing expansion for the first time since March 2008. The pair was also supported by that HSBC reported slightly better-than-expected earnings and said the worst of the financial crises is over. The improving outlook for the UK economy is likely to constrain the Bank of England from expanding its quantitative easing program at its Thursday meeting. After breaking the 1.66-area resistance last Friday, the pair is now set to test the 1.70 resistance. If this resistance is broken, the GBP/USD will rally again. There is support in the 1.65-1.66 area.

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Financial and Economic News and Comments

US & Canada

  • The ISM US manufacturing index rose more than expected to 48.9 in July from 44.8 in June, indicating US manufacturing contracted at the slowest pace in 11 months, data from the Institute for Supply Management showed. All of the index's key components improved in July. The new orders index expanded into positive territory to 55.3 from 49.2, the production index grew to 57.9 from 52.5, and the employment index improved to 45.6 from 40.7. The prices paid index rose to 55.0 in July, the highest reading since the collapse of Lehman Brothers in September 2008, from 50.0 in June.
  • US construction spending unexpectedly increased 0.3% m/m to $965.7 billion in June after an upwardly revised 0.8% m/m decline in May, figures from the Commerce Department showed.

Europe

  • The eurozone manufacturing PMI was upwardly revised to 46.3 for July, an 11-month high, above a previously reported 46.0 and June's 42.6, while the German manufacturing PMI for July was upwardly revised to 45.7, a 10-month high, above a previously reported 45.2 and June's 40.9, according to final July manufacturing PMI data by Markit Economics.
  • The population of the 27-nation European Union was estimated at 499.8 million on January, 2009, compared with 497.7 million on January 1, 2008, Eurostat reported. The EU27 population rose 2.1 million in 2008, an 0.4% annual rate, due to a natural increase of 0.6 million and net migration of 1.5 million, according to a Eurostat report released today.
  • Germany's retail sales unexpectedly fell 1.8% m/m in June after a 1.3% m/m slide in May, data from the Federal Statistical Office showed. June retail sales declined 1.6% y/y.
  • The UK manufacturing PMI rose more than anticipated to 50.8 in July, indicating UK manufacturing expanded for the first time since March 2008, from an upwardly revised 47.4 in June, according to PMI data by the Chartered Institute of Purchasing and Supply and Markit Economics. The new orders index rose in July to 55.9, the strongest reading since November 2007, from 49.8 in June. The employment index showed the slowest rate of job cuts since June 2008.
  • Switzerland's SVME PMI rose to 44.3 in July from 41.8 in June, indicating Switzerland's manufacturing contracted at the slowest pace since October 2008, according to a survey from the Swiss Association of Purchasing and Materials Management and Credit Suisse.

Asia-Pacific

  • Australia's manufacturing contraction eased for a third straight month in July. The Australian Industry Group- PricewaterhouseCoopers Australian performance of manufacturing index climbed to 44.5, its highest level since September 2008, from June's 38.4, the AiG and PwC reported.
  • Japan's labor cash earnings fell 7.1% y/y to ¥430,620 in June, a record year-on-year drop, following an upwardly revised 2.5% y/y decline in May, figures from the Ministry of Health, Labour and Welfare showed.
  • China's CLSA PMI rose to 52.8 in July from 51.8 in June, indicating China's manufacturing activity expanded to its highest level in a year amid economic recovery signs, according to CLSA Asia-Pacific Markets.