A moderate dose of risk aversion permeated markets with the exception of European and US equities, although the modest 0.2% gain in the S&P500 is best described as consolidative rather than directional. There was little to excite markets, some quarters latching onto the slightly better US personal spending data. The CRB commodities index fell 0.8%, oil and copper both down 0.7%, while gold (-1.4%) formed a bearish key reversal day. The US treasury curve fl attened, 10yr yields falling 7bp to 3.03, an area which is technically pivotal. A break lower would open the way to 2.80. Greek 10yr government bond yields rose 17bp, but other peripherals were quiet. The US dollar index bounced around 0.6% from the European opening. EUR fell throughout the European and US sessions, from 1.2380 to 1.2266. GBP was fi rmer, from 1.5020 to 1.5130, amid dividend repatriation chatter as well as BoE hawk Sentance suggesting the Sterling may be undervalued. USD/JPY spiked lower to 89.05 around the US data, otherwise sitting around 89.40. AUD, the best of the commodity currencies on the day, sat in a narrow range, 0.8707 to 0.8759, as did NZD, 0.7060 to 0.7106. AUD/NZD found support at 1.2300 and traded to 1.2345, forming a bullish key reversal day. US personal income increased 0.4% in May following an upwardly revised monthly growth rate of 0.5% in April. Spending was up 0.2% over the month following a fl at April. Both numbers appear to refl ect the recent run of positive payroll numbers. Indeed, wages and salaries posted a second consecutive rise of 0.5% and the largest quarterly gain since Dec 2007. The savings rate also improved to 4% while core PCE was up 0.2% on the month. The defl ator slowed moderately to 1.9%Yr from 2.0%Yr. US Dallas Fed manufacturing dipped back into negative territory during June falling to -4.0. The breakdown was fairly downbeat with all components posting falls and over half now below zero. Of note, production fell from +21 to -2 while new orders (-8 from +16) and shipments (-9 from +15) fared little better. Overall, the out-turn was more negative than the other manufacturing surveys carried out by the Fed. Given the impact on industry following the oil spill in the Gulf of Mexico, however, the dip is not entirely surprising. The Chicago Fed activity index, also released today, showed a decline in activity to 0.21 in May from 0.25 previously. Japanese retail sales declined by 2.0% in May against market expectations for a –0.1% monthly decline. Growth over the year subsequently decelerated to +2.8%yr, from +4.9%yr in April. The weakness was broad based across small and large stores. Sales at large retail stores were 1.0% lower in the month as supermarket sales declined by 1.4%; department store sales were broadly fl at in May. Eurozone M3 money supply was unchanged from -0.2% in the year to May with the 3m average similarly unchanged from -0.2%. The three month average appears to have levelled off just below fl at in recent months. Lending to households accelerated to 2.6% on the year (from 2.5%) although short-term loans to nonfi nancials remained in contraction, albeit at a lesser pace than the previous month. German infl ation slowed to 0.8%yr from 1.2%yr in the preliminary reading for June CPI (EU-harmonised) despite higher oil prices as falls in gas prices and package holidays offset the impact of oil prices. Outlook AUD/USD and NZD/USD outlook next 24 hours: A muted day is initially in store. AUD should again be contained by 0.8680 and 0.8780. NZD should again be capped by 0.7160, but support is now lower at 0.7000.

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