Economic releases overnight: Forecast Actual
May Euro-zone Sentix Investor Confidence +4.40 +3.50
April U.S. ISM Non-Manufacturing Composite 49.5 52.0 Trading was subdued yesterday with Japan and the U.K. on holidays that produced only two releases to work on. Euro-zone investor confidence dropped back lower which can hardly be a surprise with industrial activity moderating steadily while inflation remains at elevated levels. In the States the ISM Non-Manufacturing Composite produced a solid surprise with its return to levels above 50 which represents an expanding services industry. Response was mixed, though the initial reaction was to buy Dollars. However, there do spear to be some question marks over the sustainability of the gains with construction and real estate returning positive numbers which just don’t appear to correlate with other housing releases. Returning to possibly the most critical issue of consumer spending a Gallup poll highlighted the fragility of confidence. The survey found that 51% of Americans are cutting back on household spending. The split came between those earning more/less than $75K. Of those earning below 70% are reducing spending versus of those above 40% are instigating cut backs. The poll clearly comes at a time when tax rebate checks have been sent out and places a question mark over whether these will boost spending. It would appear that before consumers will spend they need to see evidence of a recovery, or at least that inflation begins to moderate. That still seems to be 2-3 months away at least so it seems like the chicken and the egg will be eyeballing each other and waiting for the other to move first… The Dollar fell back lower after its brief attempt to replicate last week’s gains with the market a little lost with very little on the slate this week to provide any real direction. The ECB and BOE rate decisions are clearly the highlight of the week but even then with virtually no chance of any changes it can hardly be called a climax. Given that last week’s positive U.S. number have failed to see any follow-through there does appear to be a risk that the week will fall into a malaise of range trading. There is a little more downside still to go in this first pullback lower but we should find the 1.5630-40 Euro and 1.0330-50 Swissie areas hard to overcome on the first test. The Pound looks weak but even that must break below the 1.9599 low and that doesn’t look likely before Thursday’s rate decision. With this expected general lethargy the carry trade may well provide a temporary solution. Already we have seen the Aussie pushing higher and it is possible that Dollar-Yen may edge higher also.
More later once the daily analysis has been done…
The following releases are due from Asia due today: Australia
March Trade Balance AUD -2.9bn The RBA are due to announce their rate decision | 
