Black Swan Capital

Friday 1 June 6:00 a.m. EDT May 2007

Key News

  •      [B]Manufacturing in  the euro region expanded at the slowest pace in more than a year[/B] in May,  signaling that economic growth may have peaked. (Bloomberg)
  •      [U]U.S.[/U][U]  economic growth should rebound[/U] in the course of 2007 after hitting a soft  patch in the first quarter and [B]the main  threat to the economy is inflation, a top Federal Reserve official said on  Friday. [/B](Reuters) 
  •      Key  Reports Due (WSJ):[B]  [/B]

8:30a.m. May Nonfarm Payrolls. Expected: +145K. Previous: +88K.
8:30a.m. May Unemployment Rate. Expected: Unch. Previous: 4.5%.
8:30a.m. April Personal Income. Expected: +0.3%. Previous: +0.7%.
8:30a.m. April Personal Spending. Expected: +0.4%. Previous: +0.3%.
10:00a.m. End-May Reuters/U Of Mich Sentiment Index. Expected: 88.0. Previous: 88.7.
10:00a.m. April Pending Home Sales. Previous: -4.9%.
10:00a.m. May ISM Manufacturing Business Index. Expected: 54.0. Previous: 54.7.

Quotable - Revaluation of Gulf region currencies?
“The abundance of liquidity and expansionary macroeconomic policies may be the key factors fuelling inflation across the Gulf region, but the situation is also a result of undervalued currencies and these countries? limited capacity to sterilize growing foreign capital inflows under pegged exchange rate regimes. In fact, despite the widening current account surpluses, GCC currencies pegged to the US dollar kept depreciating (by about 12.5%) in real terms in the past four years. Although this is a reflection the dollar?s sustained depreciation against other currencies, it is nevertheless a serious challenge to GCC countries. In our opinion, as long as there is no policy response, the effect of imported inflation will become more pronounced and threaten macroeconomic stability. Indeed, this is why we have argued for the revaluation of GCC currencies and the introduction of more flexible exchange rate regimes. We believe that the realignment of currencies with economic realities would stem the spread of inflation pressures and help to maintain a sustainable growth trajectory. Although Kuwait?s decision to de-peg its currency from the dollar is just too marginal to have any meaningful effect on the macro front, it is nevertheless an important step in the right direction and may well encourage others to follow its footsteps. Even if we ignore the convergence criteria for monetary unification in 2010 (which certainly remains elusive under the current circumstances), the case for currency revaluation and adopting flexible exchange rate systems is getting stronger every day. After all, the most important policy objective ? creating jobs ? requires an economic environment based on sound principles and institutions.”

                                  Serhan Cevik

FX Trading - Euro stall?

I guess we find out today?but we have German manufacturing disappointing this morning. We have US data still surprisingly spirited given the dourer expectations, housing seems to be fading as a major concern (though its ugly head can always be reared), and we have Fed-talkers jawboning on inflation.

Jack Crooks
Black Swan Capital