Declining US consumer confidence boosted the yen and dollar on Friday. The Japanese currency rallied against all major currencies for the week as increased risk aversion spurred investors to unwind carry trades. The dollar rose versus all the major higher yielding and risk sensitive currencies. Furthermore, the USD gained against the euro, pound and Australian dollar for a second week and rose against the Canadian dollar for a sixth week as investors deleveraged and stocks and commodity prices declined. The S&P 500 fell 3.55 points to 879.13, for a fourth weekly drop. Equities: Daily US Stocks US stocks fell for a third week but the downside is limited. Fixed Income: Credit Spreads Indicate Recovery Treasury interest rates have risen off their lows, credit spreads have narrowed and interbank rates have declined, indicating the financial panic is over and the economic outlook is improving. Commodities: Daily Commodities Commodities have bottomed and are moving higher. US LEI: Globicus LEI Signals Expansion in September The Globicus/qEcon Research US overall leading economic index reached a record-low -8.7 in December 2008 when the short leading index plunged to a record-low -16.7, the lowest level since the early 1950s. Having risen every month since then, the long leading index in May was at 8.4, the overall at 2.1 and the short leading at -0.6 indicating an end to the Great Recession. At -8.6 smoothed growth rate in May, the coincident index shows the US economy remained in a deep recession. However, the LEI is rising strongly, indicating the coincident index should turn positive in September. Q3 GDP may be modestly negative, but Q4 GDP should be strongly positive. US Economic Trends: US Recession Is Bottoming Out The US economy remains in a deep recession, but an economic recovery is imminent. The Globicus LEI indicates the recession will end in the third quarter or more likely the fourth. EMU LEI: Eurozone Economic Recovery Not In Sight The leading economic indicator fell from -6.9 in February to -7.1 in March, indicating a eurozone economic recovery is not in sight. UK LEI: UK LEI Signals UK Economic Recovery The UK leading index increased from -2.9 in February to -0.5 in March, signaling a UK economic recovery is in sight. A Primer on Deflation In the WWII period, low inflation did not induce fears of deflation because economists believed the institutions created by the Keynesian revolution had a bias toward inflation. After more than 50 years of absence, deflation has now reappeared on the agenda as something to worry about. So what is deflation? Deflation is defined as persistent declines in the general price level.

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