Oil prices hit $135pb and will act as a proxy for monetary tightening…Releases from Europe
Forecast Actual
March Italian Retail Sales (MoM) - 0.2% - 0.5%
March Italian Retail Sales (YoY) +0.6% - 1.0%
May Italian Consumer Confidence Index 99.4 103.2
The Italian Consumer Confidence result was rather stunning, the index rising to its highest level for the year in May and based on the robust labor market. And maybe it’s just as well that consumers are feeling more confident because in March the rather substantial drop in retail sales is rather a dampener.
The one thing that can be noted is the rather volatile sequence these confidence numbers tend to take, often seeing quite large moves either up or down in response individual events. It will be worthwhile waiting for confirmation before reacting to these…

The following economic releases are due today:
Q1
U.K. Business Investment (QoQ) +0.3%
U.K. Business Investment (YoY) +5.5%
U.S. House Price Index (QoQ) - 1.4%
March
Euro-zone Industrial New Orders (MoM) - 0.5%
Euro-zone Industrial New Orders (YoY) +4.8%
U.S. House Price Index (MoM)
Italian Retail Sales (MoM) - 0.2%
Italian Retail Sales (YoY) +0.6%
April
U.K. Retail Sales (MoM) - 0.5%
U.K. Retail Sales (YoY) +4.2%
May
U.K. CBI Monthly Industrial Trends
U.S. Initial Jobless Claims (17th) 370K
U.S. Continuing Claims (10th)

News releases this morning could be a sign of things to come.
Australians are looking for higher inflation and they probably won’t be too wrong with this morning’s burst of buying taking crude oil above $135pb. At that price Japan’s trade surplus will continue shrinking too. April’s numbers were a grim warning of what most countries will be seeing to their oil bills over the coming months.
However, while Japan’s All Industry Activity Index was much stronger than expected, rather gloomily industrial output dropped 3.4 percent and spells out a more bearish outlook for Q2 GDP and a continued narrowing of the trade surplus. Nor will the BOJ be happy with the FED’s reduction in their 2008 GDP forecast to somewhere in the +0.3%-1.2% range which spells extension of the tough times exporters are having, worsened by the strong yen.
And oil having rallied by 7 Dollars over the past 24 hours will maintain the upward trend in oil prices that is going to tighten the screws on consumer confidence and spending, the very warning that George Soros and the PIMCO CEO gave. Higher inflation when generated by external forces is an effective tightening in monetary policy as it causes a contraction in activity.
So now consumers face high a double whammy of tightening through the maintenance of high interest rates and higher prices. What odds are there for a global recession I wonder?
Still the market will favor a lower Dollar and this will broadly remain intact for this week and probably just into next. However, the prospect of a slew of consumer confidence numbers next week will provide interesting reading.
However, for today with the Euro-zone Industrial New Orders and Italian Retail Sales numbers likely to be on the soft side there could be a mild pullback higher for the Dollar.

Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 103.90-25 1.5901-52 1.0376-05 1.9814-42
Res: 103.44-60 1.5812-45 1.0280-00 1.9757-76
Spt: 102.56-72 1.5707-44 1.0220-33 1.9665-93
Spt: 101.71-18 1.5651-79 1.0134-86 1.9585-12

See Also

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