Metals prices continue to move broadly sideways on prospects for ongoing low interest rates • Economic growth may broadly slow world wide but the effect of uncertainty in the banking system combined with ongoing low interest rates and a weaker US dollar should maintain key commodity prices eg copper. • Gold prices should continue to gain so long as central banks hold back from gold sales Markets continue to be plagued by events, or lack of events in Greece. • Gold is off as the dollar climbs. • Contagion fears increase – prompting renewed speculation that Spain will require aid. • Oil backs off as the prospects of a stagnant US economy increase. Ongoing high oil prices continue to impact global growth and trade flows. • UK based retailers are increasingly looking at sourcing manufacturing from the UK and Europe as costs in China rise and as the cost of transport from China and the US also rises. • Falling manufacturing costs in the UK and the US seems to be slowly causing some manufacturing to flow back from China as lower currency rates and transportation costs help to stimulate these regions. • While the overall impact may not be so good in terms of global economic growth at least there may be some rebalancing of economic activity. Economic News China – Finance Ministry failed to reach their target for the second time this year. Ministry successfully sold 13.35bn yuan of 1 year bonds, falling short of a target of 20bn yuan. The auction was likely affected by the hike in the reserve ratio earlier in the week. • Shanghai Composite Index yesterday fell 1.5% to the lowest level since September. US – Expectations ahead of a report from the Conference Board suggests that the Index of leading indicators rebounded in May after declining in April. • Yesterday the Federal Reserve Bank of Philadelphia’s general economic index fell to -7.7 – the lowest reading since mid 2009. • Additionally a survey compiled by Bloomberg showed that economic expectations fell to -31 this month – the lowest reading since March 2009. • A small sign of life in the housing market emerged yesterday – Housing starts rose 3.5% from April. Building permits also increased 8.7%. The figures are undoubtedly a positive however it is important to note the depressed base previously. • New figures interestingly suggest that foreclosures are driving inflation on the back of soaring rental prices. • Former Federal Reserve Chairman Alan Greenspan is feeling bullish this week - Yesterday in an interview with Bloomberg he said that Greece was certain to default and that it could drive the US into recession. Japan – Former Bank of Japan Governor has stated that the country can recover from the devastating earthquake in March without additional asset purchases – additionally predicting that the economy will accelerate its recovery once supply constraints improve. • Toyota has announced that it is expecting to return to normal production in the US earlier than expected in September – giving an early indication that the company is recovering faster than initially thought post earthquake. • The Toyota effect as it is know continues to disrupt industry worldwide with a number of specialist Japanese component manufacturers still unable to fulfil orders for critical components for pumps, electronics etc. Some major machinery manufacturers remain concerned that this may serve to delay production lines. Europe – No end in sight for the Greek crisis. The euro fell for a third day today as concerns remained that the Greek government will fail in their attempt to pass additional austerity measures and EU leaders would remain in deadlock about how to proceed. • The lack of clarity and more importantly decisive action continues to pose/increase contagion fears… What is next for Spain? – Spanish bond yields yesterday jumped to the highest level since 2000. India – After raising the repurchase rate yesterday, India’s central bank signalled that it may reduce the severity of its action against inflation in an effort to balance growth and excessive price appreciation. Tightening measure will likely continue but authorities are going to intensify efforts not to hamper growth. Libya – Maybe a sign of progress maybe a ruse but yesterday Gaddafi’s son stated that the leader would be prepared to hold elections in the country and abide by the results. No further details were disclosed. Currency – The euro is off this morning as investors weigh up the prospects of the Eurozone and come to the conclusion that the math does not add up! The dollar is up on the back of the sovereign debt concerns and an increase in risk aversion. US$/1.416eur vs $1.415/eur yesterday. Yen80.44/$ vs 80.69/$, SAr6.864/$ vs 1.613/$ $1.611/GBP vs 1.613/GB

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