The dollar fell against its rivals on Thursday. Risk appetite and global equity prices rose as a less-than-expected 0.1% q/q decline in Q2 2009 eurozone GDP boosted economic recovery hopes. The optimism was lessened somewhat in the US as retail sales unexpectedly fell and initial jobless claims unexpectedly rose. The S&P 500 was up 6.92 points to 1012.73, approaching the 1020 resistance. Both the dollar and US equity indexes are at important technical levels. The dollar index fell to 78.40, just above the critical 77.50-area support. The yen rose against the dollar but declined versus other major currencies. The pound and commodity currencies were supported by rising equity and commodity prices. 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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