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Germany's ILO Unemployment estimate will be watched tomorrow, but may surprise to the upside as the country unexpectedly returned to a deflationary stage during this month. Sentiment data will be released tomorrow for a month in which an easing surge in global equities saw stocks teeter in a ranging environment.

Key Overnight Developments

• Pound Fails to Sustain 1.60 Break
• Japanese Retail Sales Advance For A First Time Since August
• New Zealand Fiscal Budget Reveals Record Deficit


Critical Levels

The British Pound sold-off by as much as 150 pips after breaking through the key 1.60 mark, failing to sustain a perceived break-out rally. Euro continued to add to its losses against the U.S. Dollar after inflation data showed that Germany suffered from deflation during May, adding to expectations that the European Central Bank may be required to act more aggressively in stimulating the economy.


Asia Session Highlights

Japan's Retail Trade data advanced for the first time since August during April, a period which saw Consumer Confidence among Japanese consumers rise by the largest amount since July 2004. Indeed, the figure rose 0.6%, ahead of expectations calling for the number to rise just a tick lower than the realized figure. The broader total store sales jumped by 5.9%, the most since October 2007. Surprisingly, Motor Vehicle sales was one of the strongest performing sub-sectors of the metric, advancing 7.4%. These stunning developments lead one to wonder what it is that may be driving such renewed spending habits. Japan currently suffers from continued economic deterioration and advancing labor market weakness. But as noted above, Consumer Confidence advanced by the most since July 2004, a move which may have come on the back of surging global equities.

Central bankers throughout the world are extremely aware of acting too slowly to curb extraordinary liquidity-easing measures, said the Reserve Bank of Australia's Deputy Governor Ric Battellino in Sydney today. Indeed the high state of awareness that currently exists about the risk of being too slow to reverse recent exceptional measures is likely to limit the probability of such a mistake being made, Battellino said. Despite these cautious warnings, it's still too early to decide whether aggressive policy measures have been effective.

New Zealand Minister of Finance Bill English unveiled that the National Party's first fiscal budget since taking power last year. English revealed a 2009-2010 budget deficit of NZ$11.87 billion ($7.3 billion), more than that which was expected. In his accompanying statement, the finance minister revealed a set of forecasts. The economy will fall by 1.7% in the year through March 2010, but will expand 1.8% in the 12 months through 2011. To finance many of the projects announced, the treasury will sell NZ$50 billion in bonds over the next four years. Negative and slowing growth, accompanied by expansive spending, will see the debt-to-GDP ratio rise by as much as 43% by 2017. These measures are a massive effort to keep the economy going through the recession by supporting jobs, safeguarding entitlements, improving public services and building more infrastructure, English's plan said. Moments after the speech, Moody's Investor Service said that the island nation's debt load is of some concern, but that their Aaa credit rating would continue to remain stable.

Euro Session: What to Expect

Germany's ILO Unemployment Rate estimate for April is expected to rise for the fifth straight month. The forecast 0.1 percentage point uptick in the figure may be understating the potentially weak start that the German economy has had for the second quarter. Just yesterday we saw consumer price data unexpectedly revert to a deflationary phase. These developments may have come as layoffs in the world's fourth-largest economy took an unprecedented toll in the month. Despite this decline inflation the Unemployment Change estimate predicts that an additional 64,000 jobs were created in May.

Switzerland's Trade Balance may fall into deficit territory in April after two-consecutive months of inching toward the area where imports exceed exports. Unexpected labor market strength during the first quarter may contribute to increased consumption from abroad. Estimates had forecast the level of employed to have fallen by 0.1% in the first three months of the year when in reality, the level actually increased by 0.8%. As such, the current surplus in foreign trade may actually turn to a deficit.

Euro-Zone Consumer Confidence is expected to rise for a second straight period after having fallen six consecutive months prior. The minuscule surveyed uptick may fall short of that. At least, on the business front, we saw that enterprise managers saw the current assessment of the economy as being worse in May than they did in the month prior.

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