Goldman Sachs says it does not "worry nearly as much about inflation as most other analysts. In particular, we don't expect substantial pass-through from the commodity price shocks to domestically generated wage and core price inflation...We remain comfortable with the view that the Fed will stay at a 2% funds rate in 2008 and 2009, i.e. much longer than currently discounted in the markets."

says US growth to be around zero in coming quarters. Says confidence in US economy is not yet returned. Mentions Canadian, Latam, select emerging markets economies as in better shape/having less exposure to global crisis than the US. Says inflation tensions being felt globally and global central banks must curb inflation expectations.

A fresh wave of broad-based selling interest sends the major indices to session lows. The Dow is holding onto a slight gain, although its advance is modest. Strength in energy (+1.8%) is unable to offset weakness in the two largest sectors -- tech (-1.2%) and financials (-2.2%).
Within the financial sector, 83% of stocks are posting a loss. Thrifts & mortgage stocks (-5.5%) are posting the largest decline, with Washington Mutual (WM 6.69, -0.85) down 11% and MGIC Investment Corp (MTG 10.62, -0.71) down 6.3%.

FTSE 100 -29.20 -0.49% 5,877.60
CAC 40 +4.06 +0.08% 4,799.38
Xetra Dax +11.82 +0.17% 6,815.63

average HICP prices since the EU started arevery close to target
due to current high HICP - must return to medium term price stability
doesn't see the euro taking over the dollar as the leading currency
a rate hike was possible but not certain in July

The Dow and S&P 500 give up a portion of their gains, while the Nasdaq extends its loss.
Technology stocks Apple (AAPL 181.97, -3.67) and Google (GOOG 553.95, -13.05) are acting as the biggest drags. Financials (-0.3%) have retreated into the red after being up as much as 0.8%. Lehman Brothers (LEH 29.50, -2.79) is the main laggard, and AIG (AIG 33.53, -0.40) also under pressure after the Wall Street Journal reported major shareholders are not happy with current management.
Diversified technology and manufacturing company Honeywell (HON 55.20, +1.19) is outperforming this session. The company announced that it signed a definitive agreement to sell its Aerospace Consumable Solutions business to B/E Aerospace for $1.05 billion. Honeywell feels the Consumables Solutions unit no longer fits with Honeywell Aerospace's focus on advanced technologies.
Dow component McDonald's (MCD 59.48, +2.53) said its global same-store sales rose 7.7% in May, topping the Briefing.com consensus estimate of 3.6%. International comparable sales rose 16.0%, or 9.1% in constant currencies. U.S. comparable sales rose 4.2%.
Alcoa Inc. (AA:US) had the second-biggest gain in the Dow Jones Industrial Average, rising 3.2 percent to $40.46. The world's third-largest aluminum producer might more than double to $60 a share were it to become a takeover target, Barron's said, citing a Citigroup Inc. analyst.
CIT Group Inc. (CIT:US) rose the most since March 24, adding 14 percent to $10.45. The largest U.S. independent commercial lender said Goldman Sachs Group Inc. will provide access to $3 billion in financing.

The central bank added that the outlook remains "highly uncertain." "By the cut-off date for including information and data in this issue (May 8), the risks to euro area financial system stability on balance had increased compared to the situation six months before," the report stated. In giving this more somber assessment, the ECB cited the fact that conditions in the US
housing market have further deteriorated as have the outlook for the overall US economy.

'We're going to be competitive. Hard to say what competitive means.'
Would be open to Blackrock/UBS transaction if could keep "part of the upside."
If look at volumes in 2q, 'March was a very, very quiet month.'

"Economics does not support oil at $140 per barrel: Look for a decline," says HFE's Carl Weinberg. "We expect to see a more trend like $85-95 per barrel by the end of the North American hurricane season. That will put prices on par with year-earlier levels, eliminating inflation risk perceived by markets and some central banks. Interest rate hikes will then drop from the conversation - properly so."

Just hitting the wires, April pending home sales unexpectedly bounced 6.3% on a seasonally adjusted annual rate, according to National Association of Realtors. Economists expected sales to fall 1.0%. The reading is the highest since October, but is still 13% below one year ago.
The major indices get a boost from the better-than-expected report, although the Nasdaq is in the red. The tech sector (-0.5%) is facing selling pressure, with Apple (AAPL 181.83, -3.81) in negative territory as the Apple Worldwide Developers Conference kicks off. Barron's reported this morning that the new iPhone's production is behind schedule.
The energy (+1.6%) and materials (+1.3%) are providing leadership.

The National Association of Realtors at 14:00 GMT will report pending home resales fell 0.5 percent in April after a 1 percent decline in March.

Liquidity volume injected in banking system has grown slowly since 2007. During crisis ECB could rely on existing framework and Fed, Bank of England had to adjust operating framework. Central banks operating frameworks have converged as a result.

Peter Rosentreich, chief market analyst at ACM- "In Europe the ECB’s Trichet will speak and should he mention monetary policy will most likely reiterate the ultra hawkish tone we hear on Thursday. Given the market reaction the last time Trichet raised the bar means we could see some market reaction should monetary policy comments get introduce."

Stock futures (S&P futures vs fair value: +3.1. Nasdaq futures vs fair value: +5.0.) rose Monday as investors aimed to recover from a dramatic selloff on Wall Street and digested news coming out of investment banking giant Lehman Brothers.
Lehman Brothers (LEH), the fourth-largest investment bank, said on Monday that it will raise $6 billion through the issuing of stock, to help make up for an expected loss of $2.8 billion in the second quarter. Lehman's shares dropped 11% in pre-market trading.
McDonald's reported May same-store sales rose 7.7%, topping the 3.6% Briefing.com consensus estimate. Financial services company CIT Group (CIT) is getting a lift in premarket action on word that the company it has agreed to a $3 billion long-term committed financing facility with Goldman Sachs (GS).
Crude prices lost $1.37 to $137.17 a barrel in electronic trading.

The euro rose to the maximum level this year against the yen and traded near a two-week peak against the dollar as market increased bets the ECB will raise rates this year.
The euro has appreciated 2.8% versus the yen and 2.3 percent against the dollar since June 5, when ECB President Jean-Claude Trichet signaled interest rates may rise next month to quell inflation.
The U.S. currency touched the lowest in almost two weeks versus the euro after a government report June 6 showed the U.S. unemployment rate climbed the most in two decades.
European Central Bank President Jean-Claude Trichet's "very clear" message last Thursday has been "quite well" understood by financial markets, ECB Governing Council member Nout Wellink said late Friday. "Trichet's message was very clear, the markets have understood him quite well, and he spoke for all of us on the Governing Council."
The yen fell against every major counterpart today after a government report showed Japan's longest postwar expansion may be over.
Gains in the dollar against the yen may be limited by speculation an U.S. industry report today will show the worst housing slump in a quarter century is weighing on the world's biggest economy.

EUR/USDreached $1.5830/40 before rate began to consolidate under the $1.5800. Offers $1.5850, $1.5870/80, bids $1.5790.

GBP/USD rose from $1.9670 to $1.9795. Cable bids $1.9740, $1.9700. Offers $1.9790/00, $1.9830.

USD/JPY reached Y105.80 before back off to Y105.35. Offers Y105.90/00, stronger Y106.30/40.

Gains in the dollar against the yen may be limited by speculation an industry report today will show the worst housing slump in a quarter century is weighing on the U.S. economy. The National Association of Realtors at 14:00 GMT will report pending home resales fell 0.5 percent in April after a 1 percent decline in March.

-- Weak dollar is adding $40/barrel to oil price.
-- Oil prices rise is not caused by supply shortage
-- Oil supply is "largely sufficient".

EUR/USD $1.5750, $1.5400
USD/JPY Y105.70, Y104.70
EUR/GBP stg0.7800
AUD/USD $0.9450
NZD/USD $0.7650

Nicole Elliott, senior technical analyst at Mizuho Corporate Bank - "Rallying faster than we had hoped, breaking above the top of the Ichimoku ‘cloud’, and re-testing May’s high at 1.5818. Expect hesitation here this morning followed by a cautious small squeeze higher. A sustained break above 1.5900 while unlikely today, will probably lead to an awful lot of re-thinking on the US dollar."

The euro rose to the maximum level this year against the yen and traded near a two-week peak against the dollar as market increased bets the ECB will raise rates this year.
The euro has appreciated 2.8% versus the yen and 2.3 percent against the dollar since June 5, when ECB President Jean-Claude Trichet signaled interest rates may rise next month to quell inflation.
The U.S. currency touched the lowest in almost two weeks versus the euro after a government report June 6 showed the U.S. unemployment rate climbed the most in two decades.
``The euro is gaining in the context of the rhetoric differential between the European Central Bank and the Fed,'' said Daragh Maher, a London-based currency strategist for Calyon, the investment-banking arm of Credit Agricole SA. ``The ECB is much more strident than the Fed, which has said it will stop easing. That's very different from saying you're about to hike.''
An interest-rate increase next month is ``possible,'' Trichet said in Frankfurt last week. It was a message that the markets have understood ``quite well,'' ECB council member Nout Wellink, who also heads the Dutch central bank, was quoted as saying in an interview with market News International.
Inflation in the euro region is running at the fastest pace in 16 years. The ECB will lift the key rate twice this year, taking it to 4.5 percent by year-end, according to interest-rate futures trading.
``Unlike the Fed, the ECB can raise rates one or two more times due to the strength of their region's economy,'' said Tetsuhisa Hayashi, chief manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. ``I am a dollar bear.''
Trichet will speak at a forum in Paris at 16:30 GMT.
The yen fell against every major counterpart today after a government report showed Japan's longest postwar expansion may be over.
Gains in the dollar against the yen may be limited by speculation an U.S. industry report today will show the worst housing slump in a quarter century is weighing on the world's biggest economy.
The National Association of Realtors will today report pending home resales fell 0.5 percent in April after a 1 percent decline in March, a Bloomberg News survey of economists showed.

Reported demand placed around $1.9720 proverd strong enough to contain the pullback from around $1.9790. The rate settled around $1.9775 for now. Offers remain in place to $1.9800, a break of $1.9805 to open the way to $1.9840/50.

Resistance 3: Y107.20

Resistance 2: Y106.50
Resistance 1: Y105.90
Current price: Y105.55
Support 1: Y104.40

Support 2: Y103.80

Support 3: Y103.20

Comments: Dollar rose sharply this morning after Friday’s sell-off with strong resistance comes at trend line from Jul 2007 at Y105.90. Above the resistance comes at Y106.50 and then – on Y107.20. Strong support is around Y104.40 (Friday’s low), then - Y103.80 and Y103.20.

Resistance 3: Chf1.0400
Resistance 2: Chf1.0340
Resistance 1: Chf1.0240

Current price: Chf1.0178

Support 1: Chf1.0160

Support 2: Chf1.0020

Support 3: Chf0.9880

Comments: Dollar remains under pressure after Friday’s sell-off. The pare pierced minor support around Chf1.0200 and tested the stronger one – at Chf1.0160 Friday’s low). Lower the the losses may widen to Chf1.0020. Resistance comes at Chf1.0240 with a break above will open the way to the next resistance at Chf1.0340 (50% of Chf1.0520 - Chf1.0160 decline). Above the target comes at Chf1.0400.

Resistance 3: $1.9900
Resistance 2: $1.9840
Resistance 1: $1.9780
Current price: $1.9766
Support 1: $1.9600
Support 2: $1.9540
Support 3: $1.9460

Comments: Cable retains positive mood after Friday’s rally. The pare has just overcame strong resistance around Friday’s high on $1.9730 and appear to target the next level at $1.9780. Stronger resistance comes at $1.9840 (May 27 high). Support is around $1.9600 (recent lows). Below correction may reach $1.9540 and stronger level on Jun 04 low at $1.9460.

Resistance 3:$1.6015
Resistance 2: $1.5900
Resistance 1: $1.5820
Current price: $1.5794

Support 1: $1.5760
Support 2: $1.5620
Support 3: $1.5570

Comments: Euro tested May 27 highs on $1.5820 (strong resistance), but upward momentum weakened. Above the above mentioned level the next target comes at $1.5900, then – life-time high on $1.6015. Support is around session low on $1.5760 with a break under will open the way to $1.5620 and then – to Friday’s low on $1.5570.

It is a light week though with moving fundamentals. A new week in the making and the start is with no other but the infamous U.S housing market. Pending home sales in April are projected today to have dropped 0.5% after 1.0% drop in March. As long as the housing market does not bottom the ongoing spread of weakness is to continue prolonging the rise of the economy, especially that now markets foresee the downside trend to prevail in the labor market.

Two main focus this week is US retail sales and CPI which will have large impact on market's expectation on whether Fed will hike by the end of the year.

Another currency to be focused on is the Canadian dollar, in particular with BoC rate decision scheduled. BoC is expected to cut rates by 25 bps to 2.75%. The Loonie will likely remain pressured even against the weak dollar, which will make it even weaker against other firm currencies like Euro and Aussie.

BoJ is widely expected to leave rated unchanged at 0.50%. Other important data this week include Germany CPI, UK PPI, industrial and manufacturing production and employment report, Japanese Q1 GDP, Australia Job report, and New Zealand retail sales.

EUR/USD $1.5750, $1.5400
USD/JPYY105.70, Y104.70
EUR/GBP stg0.7800
AUD/USD $0.9450
Kiwi; $0.7650

EUR/GBP drops below stg0.8000, as sterling gains a boost from the release of stronger than expected UK May PPI data. Rate challenged reported demand placed between stg0.7995/90, a break below to open a deeper move toward stg0.7980/75.

GBP/USD challenges offers at $1.9730/35 with a break above to open a move on toward $1.9750, with traders now suggesting stops in place above this level.

EUR
Bids: $1.5750, $1.5725/20, $15705/1.5695
Offers: $1.5850, $1.6020

JPY
Bids: Y104.00/90
Offers: Y105.40/50, Y106.20/30

GBP
Bids: $1.9660/50, $1.9630
Offers: $1.9730/35, $1.9750

AUSSIE
Bids: $0.9600
Offers: $0.9650

The dollar rebounded from a one-week low against the yen on speculation U.S. financial companies will raise the funds needed to weather credit-market losses.
The U.S. currency gained after people familiar with the matter said Lehman Brothers Holdings Inc. sold $120 billion of its holdings in the second quarter and the Wall Street Journal reported the company will raise more than $5 billion in capital from outside investors.
The U.S. currency traded near the lowest in almost two weeks versus the euro after a government report June 6 showed the U.S. unemployment rate climbed the most in two decades. It also traded near its weakest level in 25 years against Australia's currency as investors reduced bets the Federal Reserve will raise interest rates this year.
The U.S. currency has fallen 12% against the euro and 9% versus the yen since September when the Fed began to lower borrowing costs. Futures on the Chicago Board of Trade on June 6 showed a 62% chance the Fed will increase the 2% target rate by at least a quarter-percentage point by December, compared with 77% odds a week earlier.

EUR/USD consolidated near lows on $1.5770 before rate began to rebound to $1.5830/40.
GBP/USD rose from $1.9670 to $1.9825/30.
USD/JPY rose from Y104.40 to Y105.40 before back off to Y105.00.

Gains in the dollar against the yen may be limited by speculation an industry report today will show the worst housing slump in a quarter century is weighing on the U.S. economy.

Japan's benchmark stock indices ended Monday's session sharply lower, weighed by the weakness in the US Friday. The benchmark Nikkei 225 was down 308.06 points, or 2.13%, at 14181.38. The broader-based TOPIX was down 30.57 points at 1397.54.

Crude oil surged to a new records last week as the dollar weakened after the U.S. unemployment rate grew the most in two decades and Morgan Stanley said prices may reach $150 within a month. The dollar weakened against the euro after unemployment rose to 5.5%, signaling the Federal Reserve may be reluctant to increase interest rates. Oil also rose after an Israeli minister said an attack on Iran may be necessary.
A decline in oil prices earlier in the week came after Congress held hearings on possible energy price manipulation, and billionaire investor George Soros said an oil price ``bubble'' is working with fundamentals in the market that may lead to a recession. Prices rose Thursday after European Central Bank President Jean-Claude Trichet's comment that the bank may raise interest rates next month caused the dollar to fall against the euro.

U.S. stocks fell the most in almost three months by the end of the week after the biggest jump in the unemployment rate since 1986 and a $8-a-barrel rise in oil prices heightened concern that the economy will sink into a recession.

That defense helped turn the tide for its stock, which closed the week down 9%, yet it failed to breathe new life into the financial sector, which was browbeaten by news Wachovia's (WB) board forced out the company's CEO, numerous arguments suggesting consumer loan defaults are due to rise, and a Wall Street Journal report that the SEC is investigating Dow component AIG (AIG) for its swaps accounting.

Strikingly, the market handled quite well the news on Thursday that Standard & Poor's cut its financial strength ratings for bond insurers Ambac Financial (ABK) and MBIA (MBI) to 'AA' from 'AAA'. In fact, the market rallied in the wake of that news, supported by the notion that it had already been accounted for in stock prices.

Resistance 3: Y107.20
Resistance 2: Y106.50
Resistance 1: Y105.90
Current price: Y105.15
Support 1: Y104.40
Support 2: Y103.80
Support 3: Y103.20
Comments: Dollar rose sharply this morning after Friday’s sell-off with strong resistance comes at trend line from Jul 2007 at Y105.90. Above the resistance comes at Y106.50 and then – on Y107.20. Strong support is around Y104.40 (Friday’s low), then - Y103.80 and Y103.20.

Resistance 3: Chf1.0400
Resistance 2: Chf1.0340
Resistance 1: Chf1.0240
Current price: Chf1.0192
Support 1: Chf1.0200
Support 2: Chf1.0160
Support 3: Chf1.0100
Comments: Dollar set stable after Friday’s sell-off. Resistance comes at Chf1.0240 with a break above will open the way to the next resistance at Chf1.0340 (50% of Chf1.0520 - Chf1.0160 decline). Above the target comes at Chf1.0400. Minor support is around Chf1.0200 with stronger – at Chf1.0160 Friday’s low). Under the losses may widen to Chf1.0100.

Resistance 3: $1.9840
Resistance 2: $1.9780
Resistance 1: $1.9730
Current price: $1.9696
Support 1: $1.9600
Support 2: $1.9540
Support 3: $1.9460
Comments: Cable set stable after Friday’s rally. Strong resistance is around Friday’s high on $1.9730 with the next target at $1.9780. Stronger resistance comes at $1.9840 (May 27 high). Support is around $1.9600 (recent lows). Below correction may reach $1.9540 and stronger level on Jun 04 low at $1.9460.

Resistance 3:$1.6015
Resistance 2: $1.5900
Resistance 1: $1.5820
Current price: $1.5774
Support 1: $1.5760
Support 2: $1.5620
Support 3: $1.5570
Comments: Euro almost reached May 27 highs on $1.5820 (strong resistance), but upward momentum weakened. Above that level the target comes at $1.5900, then – life-time high on $1.6015. Support is around session low on $1.5760 with a break under will open the way to $1.5620 and then – to Friday’s low on $1.5570.

High Low Close
EUR/USD 1.5774 1.5571 1.5767
USD/JPY 106.32 104.91 104.98
GBP/USD 1.9733 1.9536 1.9698
USD/CHF 1.0406 1.0188 1.0191

EUR/JPY 166.12 165.00 165.55
EUR/GBP 0.8004 0.7951 0.8004
GBP/JPY 208.03 206.72 206.82
GBP/CHF 2.0363 2.0066 2.0076

Change % Change Last
Nikkei 225 +148.32 (+1.03%) 14489.44
Topix +3.66 (+0.5%) 1428.11
DAX 30 -138.02 (-2.02%) 6803.81
САС 40 -111.74 (-2.3%) 4795.32
FTSE 100 -88.50 (-1.5%) 5906.80
Dow -394.64 (-3.13%) 12209.81
Nasdaq -75.38 (-2.96%) 2474.56
S&P -43.37 (-3.09%) 1360.68
10YR 96 +1 3.91% 99 21/32
OIL NYMEX +10.75 (+8.41%) $138.54

Australia Queen's Birthday
05:00 Japan Leading indicators (April) preliminary - 18.2
05:00 Japan Coincident indicators (April) preliminary - 30.0
06:00 Germany Trade balance (April) unadjusted, bln - 16.7
06:00 Germany Current account (April) unadjusted, bln - 17.2
08:30 UK PPI (Output) (May) unadjusted - 1.4%
08:30 UK PPI (Output) (May) unadjusted Y/Y - 7.5%
08:30 UK PPI Output ex FDT (May) adjusted - 1.2%
08:30 UK PPI Output ex FDT (May) unadjusted Y/Y - 4.6%
08:30 UK PPI (Input) (May) adjusted - 2.4%
08:30 UK PPI (Input) (May) unadjusted Y/Y - 23.1%
23:50 Japan Machinery orders (April) adjusted - -8.3%
23:50 Japan Machinery orders (April) unadjusted Y/Y - -6.2%