Trading mixed Wednesday, the dollar was supported by stronger-than-forecast growth in the US services sector and an unexpectedly strong US employment forecast by payroll services firm ADP. Meanwhile, eurozone retail sales fell dramatically but did not push the EUR/USD below its important 1.54 support. Sterling fell after a report showed UK consumer confidence dropped to a 4-year low in May and another survey suggested the UK services sector is stalling. The yen and Swiss franc was little changed on a directionless US equity market. The Canadian dollar fell for the fourth consecutive day. The Bank of England and the European Central Bank are expected to keep benchmark interest rates at 5.00% and 4.00%, respectively.
The AUD/USD rose as better-than-expected Q1 GDP growth raised speculation the Reserve Bank of Australia will increase interest rates this year. The pair has traded at a narrow range between 0.95 and 0.9650 since breaking the important 0.95-handle on May 16. The pair has risen from 0.85 in January to 0.96. The technical picture indicates further AUD/USD gains. However, based on our leading economic indicators, the fundamental outlook for the Australian economy is deteriorating. If the strong uptrend support at the 0.95 area is broken, the AUD/USD will fall significantly
Financial and Economic News and Comments
US & Canada
The US economy added 40,000 private sector jobs in May, according to payroll services firm ADP, a surprise gain and well above the expected loss of 30,000 jobs in the month. The services sector of the economy added 77,000 jobs. Employment in the goods-producing sector lost 37,000 jobs, the eighteenth consecutive monthly decline. Manufacturing lost 26,000 jobs, the twenty-first consecutive monthly drop. Adding approximately 15,000 new government jobs to today's ADP data would show about 55,000 total jobs gained in May.
US non-farm business productivity increased at a 2.6% q/q annualized rate in Q1 2008, the Labor Department said, up from the previous estimate of a 2.2% q/q rise. Productivity rose 3.3% y/y, the fastest year-to-year rise since Q2 2004. Unit labor costs rose an unrevised 2.2% q/q in Q1. Unit labor costs increased just 0.7% y/y in Q1, the slowest rise since 2004.
The ISM US non-manufacturing index fell less than expected to 51.7 in May from 52.0 in April, the Institute for Supply Management reported. The indexes for business activity and new orders both rose to 53.6 in May, signaling further expansion. The prices paid index increased to 77.0, the second highest level since the index started in 1997. Overall, the figures indicate moderate growth in the US services sector with increasing inflation pressures
Federal Reserve Chairman Ben S. Bernanke said rising long-term inflation expectations were a “significant concern” for policymakers
Europe
The RBS/NTC purchasing managers' index (PMI) for the the eurozone services sector fell to 50.6 in May, matching January's 4-year low, from 52.0 in April. The reading is approaching the critical level of 50.0; a figure below this marks contraction in the eurozone services sector.
The composite PMI, combining readings for services and manufacturing, declined to 51.1 in May from 51.9 in April.
Germany's services PMI declined to 53.8 in May from 54.9 in April, while the French index fell to 50.5 from 52.8. Italian and Spanish services industries contracted in May, with the Italian index dropping to 48.1 from 49.8 and Spain's index rising to 43.3 from 42.5
The RBS/NTC purchasing managers' index (PMI) for the the eurozone services sector fell to 50.6 in May, matching January's 4-year low, from 52.0 in April. The reading is approaching the critical level of 50.0; a figure below this marks contraction in the eurozone services sector.
The composite PMI, combining readings for services and manufacturing, declined to 51.1 in May from 51.9 in April.
Germany's services PMI declined to 53.8 in May from 54.9 in April, while the French index fell to 50.5 from 52.8. Italian and Spanish services industries contracted in May, with the Italian index dropping to 48.1 from 49.8 and Spain's index rising to 43.3 from 42.5
The Nationwide Building Society UK consumer confidence index dropped to 69 in May, the lowest since the survey began in May 2004, from 70 in April, Nationwide Building Society said. The measures for present situation, expectations, and spending dropped to 60, 75, and 60, respectively.
European retail sales fell a more-than-expected 0.6% m/m in April, down 2.9% y/y, as soaring fuel and food prices undermined consumer spending, EU statistics office Eurostat reported. The year-on-year drop in euroarea retail sales is the largest since the data began in 1995.
Asia-Pacific
Australia's Q1 2008 GDP grew a faster-than-expected 0.6% q/q following a revised 0.7 q/q rise in Q4 2007, the Bureau of Statistics said. The economy expanded 3.6% y/y. The positive Q1 GDP data drove the Australian dollar higher on speculation the Reserve Bank of Australian may raise interest rates this year.
Japan's Q1 2008 capital spending excluding software fell a less-than-estimated 5.3% y/y, the Finance Ministry said. The data signals Japan may avoid a recession.
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