While traders digest important earnings from US financial institutions presenting the losses they acquired in the second quarter on the back of the credit market meltdown. The start is to be from Europe with INFALTION AND CONFIDENCE from both major counterparts...
UK is to release their May headline inflation figures and expectations strengthen the view that the Bank of England is not to lower their benchmark interest rate anytime soon to mitigate the economic slowdown. CPI is expected to rise 0.4% on the month after 0.8% in April while annual CPI inflation is expected to leap the target at 3.2% which by that it will have exceeded the bank's target by 1.0% which will make us today see Governor King address the Chancellor of the Exchequer explaining proposed means to set inflation back to target.
As for the measure used to adjust wages and considered as the gauge of life expenses the RPI is expected to ease the rise on the month with 0.4% after 0.9% while remain unchanged on the year at 4.2 percent. Though wage inflation remains subdued in UK especially with a softening labor market yet with lenders not easing their mortgages after the credit turmoil and housing slump though the BoE cut 75 bp yet the housing market conditions are rising repossessions are preventing them from doing so especially with ailing balance sheets they acquire after the US subprime market collapse.
As for the EU area we have confidence figures from Germany as the ZEW survey is expected to show softening businesses confidence in June regarding the economic sentiment and current situation, despite that Germany has been exceeding expectations with strong resilience and bolstering growth prospects for the Union as it withholds the largest weight among the 15 nations yet surely slowing demand and surging materials especially oil with inflation is limiting businesses profit margins which surely is affecting their businesses. While we also have April's trade figures for the EU as the deficit is expected to have narrowed, meaning good contribution to GDP.
Leading us now to the American session as the start will be with producer inflation, which surely with the surge of energy prices, a depreciating dollar and rising raw materials in general producers are aching with rising inflation as they already have tight margins with slowing demand and have no other choice but to reflect the rise into the economy, the PPI is expected with a rise of 1.0% on the month and an annual rise of 6.8% after 0.2% and 6.5% respectively, as for the core level excluding volatile imputes its expected to ease the rise with 0.2% on the month after 0.4% previous and to remain steady at 3.0% in annual term.
As for the Housing Starts Report projections are not bright as housing starts are expected to drop to 980 thousand units after 1,032 thousand units in April, as rising defaults and foreclosures are mounting the supply in the market with sluggish demand constructors are not keen to cracking new houses.
While looking at the gauge of future activity, building permits are to reflect that confidence is still sluggish regarding the sector and Americans are not approaching the battle sense still; they are projected to drop to 960 thousand after 978,000 in April as pessimism still foreshadows the sector especially as financing remains still tight after the credit squeeze and the subprime mortgage market collapse.
The Feds argue that the economy has escaped recession fears and started to post potential for development, as they now see rate accommodative while they keep their eyes on inflation threats as to not prolong the slowdown. ISM Manufacturing contracted in May yet on a slower pace and today the broader measure is expected to post also better performance, as Industrial Production is expected to have risen 0.1% in May after 0.7% drop in April while the inflation gauge is to remain submissive and steady at 79.7%.
Regardless of the hawkish comments and bets that the feds are to raise rates as soon as August the perception will not materialize unless supported by real fundamentals that show improving economic performance, and not just sluggish output, that will be the dollar's perception of appreciating and expectations of the long-term will not materialize unless defying reality, especially after Americans ware away their rebate checks are they to continue spending and were they sufficient to support the economy and will the housing reach a bottom as liquidity is still tight and foreclosures are still mounting!
Those are the real questions in search of truth and that is the state of economy we are in so rest ashore that no dollar is to rise until the economy actually does especially as crude's bubble is yet to burst after setting a new all time record yesterday and seemingly we are to see $150 barrel no matter!!!