Overview: In June the employment report continued to print moderate job losses consistent with a nearly stagnant, but not recessionary, US economy. The economy shed 62,000 jobs (DB -50,000, Consensus - 60,000) in June and on top of this the employment figures for the previous months were revised down by 52,000. Hence, the report included a total loss of jobs of 114,000 persons. Moreover, the unemployment rate failed to move lower keeping its level of 5.5% in June. Wage moderation continues.

The Riksbank is clearly much more worried about inflation than financial markets or analysts appear to be. The Riksbank has stated it will deliver hikes in September (4) and October (23). The main reason of course being higher inflation on oil/fuel and food, etc. The oil price is expected to remain around USD140/bl until 2011. The most interesting aspect, in our view, is that the Riksbank has repositioned itself (again) as an ‘inflationnutter’. Indeed, if our forecasts are correct, with higher

Overview: The ECB raised rates on 3 July by 25 bp to 4.25%, which came as no surprise. As we expected, there was a much more balanced approach in both the introductory statement and the question and answer session than there was in June; the committee used milder language in order to ensure it did not feed expectations of more rate changes. Details: This time the ECB expressed much more concern about the growth picture by reintroducing references to downside risks to growth, omitting upside

Integration into the EU has supported large capital flows into new EU member states. Foreign direct investments (FDI) have hence increased rapidly, and have to a large extent financed large C/A deficits. In the coming years we, however, see large risks that these flows could decline in most countries in CEE, SEE and in the Ukraine and Kazakhstan. Below we present some arguments for this view. First, historical FDI in the EU8+2 has to a large extent reflected privatisation revenues, and since

Tougher times for policymakers • In the June edition of Emerging Markets Briefer we made the argument that in today’s world of slowing global growth, rising inflation and an ongoing credit crisis, it is extremely important that economic policies be credible. We still believe this theme is extremely important, and market developments in the past month clearly underline this fact. • With the global economic and financial environment worsening, policymakers will be tested to a much greater degree

Global equities markets are in a tough situation. Declining indices and session finishing in red are not the best advertisement for stocks recently. The mood of investors is not good and it seems that this situation can last for some time. This past week was no different. Declines were not spectacular but steady. The American economy is far from recovering, and investors are starting to get worried. The Dow Jones Industrial Average declined by 1.25% to 11,287 while the S&P 500 dropped by

Macro outlook • Inflation fears and financial fears are still battling for the leader’s jersey in the financial markets. Financial fears have been in the lead in recent weeks: equities have tumbled and credit spreads have widened as risk appetite has waned. This has boosted demand for government bonds. Short yields have fallen in both the US and in Euroland since the start of June. However, inflation fears could easily regain the lead if oil prices continue to rise. Hence, uncertainty is high.

Impulses. Once again, the US economy is proving to be more “resilient“ than anticipated. At just over 1½%, we expect that GDP growth in Q2 2008 was even stronger than at the beginning of this year (+1%). The main catalyst was, however, the federal tax rebate checks (p. 5-7). Fed. This boost to purchasing power should also be felt in the current quarter. At the same time, inflationary pressures are still increasing. But the Fed cannot yet scale back its massive monetary policy stimulus as

ECONOMIC DATA ·FR May Central Government Balance: -€50.1B v -€45.0B prior ·SP May Industrial Output WDA: -5.5% v -0.8%e || Prior revised from -0.2% to 0. 2% ·SP May Industrial Output NSA: -7.3% v 11.3% prior || Prior revised from 11.3% to 11.8% ·GE May Factory Orders: M/M -0.9% v 0. 8%e || Prior revised from -1.8% to -1.7% |||| Y/Y -2.0% v 2.0%e || Prior revised from 15.0% to 15.2% SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ·The ECB’s Mersch said overnight that an ECB rate hike will not

Gold Keeps “Extreme Gains” in Thin Trade as European Banking Shares Sink on Failed Rescue Bid SPOT GOLD PRICES drifted in thin trade on Friday, bouncing off yesterday’s low at $930 per ounce as crude oil ticked down and the US Dollar held flat after Thursday’s 1.2% jump. New York was closed for the long Independence Day weekend. ” Gold is still holding onto its recent extreme gains very well,” noted the Mitsui team here in London this morning. “[But] from here we would have to point out that