Economic Analysis | US JAMES F. OSULLIVAN Chief Economist +1 212 589 6479 josullivan@mfglobal.com STEPHANIE S.

CHENG Economist +1 212 589 6373 scheng@mfglobal.com

JULY 8, 2011

INSTITUTIONAL USE ONLY

MF Global Weekly Report

MACRO FOR MARKETS

CONTENTS

Disappointing Employment Report

The June employment report was much weaker than expected. While disappointed, we caution against simply extrapolating. Yes, there has clearly been some loss of momentum in the last few months, but (a) we see good reasons to believe that the latest employment data exaggerate the falloff in the underlying trend, and, (b) there are also good reasons to expect momentum to turn more positive in coming months. That said, risks are rising that we will have to pare our growth projections. The 22,000 per month average gain in payrolls in the last two months is down sharply from a 179,000 per month pace in the first four months of the year. In our view, that degree of slowing is much greater than seems consistent with other data, including the employment indexes in the ISM surveys and jobless claims. We continue to expect the unemployment rate to trend lower in the next year and a half, although we have adjusted our forecast slightly to reflect the higher than expected level in June. We now forecast a decline to 8.8% at the end of 2011 (instead of 8.6%) and 7.9% at the end of 2012 (instead of 7.8%). At 9.2%, the June reading was up from a low of 8.8% in March but still down from 9.6% in Q4 of 2010 and 10.0% in Q4 of 2009.

Pg. 2 | Disappointing Employment Report Pg. 6 | Forecast Summary Pg. 7 | Data Preview Pg. 14 | Calendar

Preview: Lots of Key GDP Input Data + Fed Chairman Testimony

We will review our estimate for Q2 real GDP growth after some key input data are reported in the upcoming weekmost important will be foreign trade, federal outlays, retail sales, and inventories. Currently, risks appear firmly on the downside relative to our 3.5% estimate for the annualized pace, although we expect many forecasters will have to raise their estimate in the week ahead. The consensus appears to be close to 2.0%. Also of note: the PPI and CPI, claims, industrial production, and the Michigan sentiment survey. The Fed chairman will testify. The weakness in payrolls in the last two months has contrasted with the relative strength being signaled by the ISM employment indexes.
0 1 0 1 0 1

420 210 0 -210 -420 -630 -840 01

ch, 000s per month, sa

0 1 0 1 0 1 0 2 0 2 0 2 0 2 0 2 0 2 0 3 0 3 0 3 0 3 0 3 0 3 0 4 0 4 0 4

0 4

0 4

0 4

0 5

0 5

0 5

0 5

0 5

0 5

0 6

0 6

0 6

0 6

0 6

0 6

0 7

0 7

0 7

0 7

0 7

0 7

0 8

0 8

0 8

0 8

0 8

0 8

0 9

0 9

0 9

0 9

0 9

0 9

1 0

1 0

1 0

1 0

1 0

1 0

1 1

1 1

1 1

1 1

1 1

1 1

1 2

1 2

60 Jun 55 50 45 40 35 30

02

03

04

05

06

07

08

09

10

11

12

Payrolls ex census Model estimate for payrolls based on regression of ISM employment data*
* Based on a 2003-09 regression of payrolls changes vs. the two individual ISM employment indexes; the regression implies a 26% weight for manufacturing and 74% for nonmanufacturing. Note: Shaded bars represent periods of recession. Source: Bureau of Labor Statistics, Institute for Supply Management, and MF Global

mfglobal.com

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

DISAPPOINTING EMPLOYMENT REPORT The June employment report was much weaker than expected, in contrast to somewhat stronger than expected data in the last few weeks. Payrolls were reported up just 18,000 in June following a downward-revised 25,000 increase in May (revised from 54,000). The unemployment rate rose to 9.2% from 9.1%. While disappointed, we caution against simply extrapolating. Yes, there has clearly been some loss of momentum in growth in the last few months, but (a) we see good reasons to believe that the latest employment data exaggerate the falloff in the underlying trend, and, (b) there are also good reasons to expect momentum to turn more positive in coming months. That said, risks are rising that we will have to pare our growth projections. How disappointing was the report? Along with weaker than expected readings for payrolls and the unemployment rate, the workweek fell 0.1 hour and average hourly earnings were only flat. Moreover, the rise in the unemployment rate was despite a 272,000 decline in the labor force; the household survey employment measure was reported down 445,000. Some Positive Signs, too More positively, jobless claims fell in the latest week (to 418,000 from 432,000) and the employment component of the nonmanufacturing ISM survey rose slightly in June from an already high level in May (to 54.1 from 54.0), even as the overall nonmanufacturing ISM index slipped (to 53.3 from 54.6). The weakness in the employment report also contrasted with the pickup signaled by the ADP survey (which showed a 157,000 rise in private payrolls in June following 36,000 in May). Within the employment report, one positive takeaway was the pickup in hours worked and wage income in Q2 as a whole. The index of private sector hours worked rose at a 3.3% annual rate in Q2, up from a 2.0% pace in Q1 and 1.9% in all of 2010 (Q4/Q4). Total private sector wage income (combining average hourly earnings and hours worked) rose at a 5.1% annual rate in Q2, up from a 4.3% pace in Q2 and 3.7% in 2010 (Q4/Q4). Were the Last Two Months Really that Weak? On that smoothed, quarterly average basis, the data look encouraging. Unfortunately, the last two months alone look much less encouraging, which raises the question: How much has the trend deteriorated in the last couple of months? The 22,000 per month average gain in payrolls in the last two months is down sharply from a 179,000 per month pace in the first four months of the year. In our view, that degree of slowing is much greater than seems consistent with other data, including the employment indexes in the ISM surveys (see bottom chart) and jobless claims. (And also the ADP report.)

Bond yields continue to track the surprises in the economic data. The weaker than expected employment report reversed some but not allof the recent turnaround in the economic surprise index calculated by Citigroup.
index 126 63 0 -63 -126 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 U.S. Economic Surprise Index (l) 10-year Treasury yield (r)
The economic surprise index, calculated by Citigroup, reflects weighted standard deviations of data surprises relative to Bloomberg median expectations in rolling three-month windows Source: Citigroup Global Markets Inc., Federal Reserve Board, and Bloomberg

% 4.0 3.6 3.2 Jul 8 2.8 2.4

The weakness in payrolls in the last two months has contrasted with the relative strength being signaled by the ISM employment indexes.
0 1

ch, 000s per month, sa

0 1 0 1 0 1 0 1 0 1 0 2 0 2 0 2 0 2 0 2 0 2 0 3 0 3 0 3 0 3 0 3 0 3 0 4 0 4 0 4 0 4 0 4 0 4 0 5 0 5 0 5 0 5

0 5

0 5

0 6

0 6

0 6

0 6

0 6

0 6

0 7

0 7

0 7

0 7

0 7

0 7

0 8

0 8

0 8

0 8

0 8

0 8

0 9

0 9

0 9

0 9

0 9

0 9

1 0

1 0

1 0

1 0

1 0

1 0

1 1

1 1

1 1

1 1

1 1

1 1

1 2

1 2

420 210 0 -210 -420 -630 -840 01 02 03 04 05 06 07 08 09 10 11 12 Payrolls ex census Jun

60 55 50 45 40 35 30

Model estimate for payrolls based on regression of ISM employment data*

* Based on a 2003-09 regression of payrolls changes vs. the two individual ISM employment indexes; the regression implies a 26% weight for manufacturing and 74% for nonmanufacturing. Note: Shaded bars represent periods of recession. Source: Bureau of Labor Statistics, Institute for Supply Management, and MF Global

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

Could the 179,000 average in the first four months of the year have been exaggerated on the strong side, with some of the slowing in the last two months reflecting payback? Yes, that is possible. For the first half of 2011 as a whole, gains averaged 126,000 per month, which was a pickup from 103,000 per month on average on an ex-census basis in the second half of 2010, 56,000 per month on that basis in the first half of 2010, and -196,000 per month in the second half of 2009. In turn, we expect the second half of 2011 to show clear further improvement relative to the first half, consistent with the unemployment rate continuing to trend lower. The unemployment rate also showed improvement in the first half of 2011 as a whole. At 9.2%, the June reading was up from a low of 8.8% in March but still down from 9.6% in Q4 of 2010 and 10.0% in Q4 of 2009.

We expect the unemployment rate to continue to trend lower in the next year and a half, although we have adjusted our forecast slightly to reflect the higher than expected level in June. We now forecast a decline to 8.8% at the end of 2011 (instead of 8.6%) and 7.9% at the end of 2012 (instead of 7.8%). Realization of our forecast will likely require a resumed downtrend in jobless claims soon. At 425,000, the latest four-week average in claims is down from as high as 440,000 in May, although it is still up from just under 400,000 in February and March. Note, though, that the level is still down from the 448,000 per week average in the second half of 2010, when the trend in payrolls gains was around 100,000 per monthconsistent with the weakness in payrolls in the last two months being exaggerated.

Payrolls gains averaged just 22,000 per month in May and June, down from a 179,000 per month average from January through April. The 126,000 average for first half of the year was still a pickup from a 103,000 per month (ex-census) average in the second half of 2010 and 56,000 in the first half of 2010.
000s per month, sa unless noted PAYROLLS CENSUS 2010 EX CENSUS 2010 GOVERNMENT EX CENSUS 2010 FEDERAL STATE & LOCAL PRIVATE MANUFACTURING MOTOR VEHICLES & PARTS OTHER MINING & LOGGING CONSTRUCTION WHOLESALE TRADE RETAIL TRADE TRANS & WAREHOUSING UTILITIES INFORMATION FINANCIAL ACTIVITIES PROF. & BUS. SERVICES TEMPORARY HELP EDUC. & HEALTH SERVICES LEISURE & HOSPITALITY OTHER SERVICES HOUSEHOLD SURVEY EMPLOYMENT* 2010 78 -1 80 -19 -18 3 -21 98 9 2 7 6 -12 1 8 7 0 -4 -5 35 26 34 12 8 120 10H1 110 54 56 40 -14 4 -18 71 15 4 11 7 -23 -4 10 -2 -1 -7 -9 34 30 31 14 4 225 10H2 47 -57 103 -79 -22 1 -23 125 3 0 3 5 -2 5 6 15 0 -1 -2 37 22 38 9 13 15 11H1 126 0 126 -31 -31 -4 -28 158 24 3 20 9 3 11 15 0 0 -1 -1 44 4 27 23 5 100 11Q1 166 1 165 -26 -27 -1 -26 191 37 7 30 8 8 14 8 -7 0 -4 -2 55 13 35 32 7 377 11Q2 87 -1 88 -37 -36 -7 -29 124 11 0 11 9 -3 7 22 7 0 1 0 34 -6 19 13 3 -177 -76 APR 2011 217 -3 220 -24 -21 -5 -16 241 28 2 26 11 4 7 64 6 1 1 1 45 -5 40 29 3 -190 50 MAY 2011 25 0 25 -48 -48 -2 -46 73 -2 -4 2 9 -4 7 -4 12 0 2 14 45 -2 18 -24 2 105 123 JUN 2011 18 0 18 -39 -39 -14 -25 57 6 1 5 7 -9 7 5 4 0 0 -15 12 -12 0 34 5 -445 -401

149 271 27 87 249 PAYROLLS EQUIVALENT PORTION *Adjusted by BLS for series breaks due to new population assumptions. Source: Bureau of Labor Statistics

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

The ISM employment indexes are also suggesting that the weakness in payrolls in May and June was exaggerated. Based on a regression of the data for most of the past decade, the June readings were consistent with a trend in payrolls gains of more than 200,000 per month. While those indexes also overstated strength in the first four months of the year, they were quite accurate in 2010 and 2009. Dont Blame the Seasonal Factors Note that we are not attributing the weakness in payrolls to overly aggressive seasonal adjustment factors. (Apparently, some analysts have used that explanation.) While the June seasonal factors were more aggressive this year than last year, the change reflected a later cutoff point for the sample (June 18 vs. June 12) in a month when not seasonally adjusted private payrolls rise sharply. (Specifically, applying last years seasonal factors would have boosted total payrolls by 59,000 and private payrolls by 75,000.) In short, we have no excuses for the much weaker than expected report other than to say that the data can be volatile and even two months combined are not necessarily representative of the trend. Also, other data are starting to suggest that momentum is turning positive again, with a number of factors that have contributed to weakness now fadingincluding Japan supply chain effects, the Q1 spike in oil prices, and some extreme weather. Among the positive signs have been a decline in jobless claims from their high, stronger-than-expected chain store sales in late June, and strength in the equity market (even with a selloff after the employment data).

At 9.2%, the June reading for the unemployment rate was up from 9.1% in May and 9.0% in April, but it was still down sharply from 9.6%, on average, in Q4. The broader, and more cyclical, U-6 underemployment series rose to 16.2% in June from 15.8% in May; it is down from 16.9% in Q4.
percent, both scales 11 9 7 5 3 79 84 89 94 99 04 09 14 Jun 19.0 15.5 12.0 8.5 5.0

Unemployment rate (l)

U-6* rate (r)

*Along with the total unemployed from the official unemployment rate (reflecting individuals who say they have looked for a job in the last month), the broader U-6 rate also includes (1) all "marginally attached" potential workers, and (2) workers employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached potential workers. Marginally attached potential workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past year. Persons employed part time for economic reasons are those who say they want and are available for full-time work but have to settle for a part-time schedule. Note: Shaded bars represent periods of recession. Source: Bureau of Labor Statistics and MF Global

At 425,000, the latest four-week average in claims is up from just under 400,000 in February and March but down from 440,000 in May and a 448,000 average in the second half of 2010 (when the trend in payrolls gains was around 100,000 per month).
initial claims, 000s , sawr

The y/y pace in average hourly earnings appears to have stabilized at just under 2%. It was 1.9% in June.
%ch, saar, total private industries 5.5 4.7 3.9 3.1 2.3 1.5 0.7 07 08 09 10 11 Average hourly earnings: from year ago Average hourly earnings: from 3 months ago Jun

670 570 470

Jul 2 370 270 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 4-week average
Source: Department of Labor

Weekly

Source: Bureau of Labor Statistics

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

More broadly, in addition to an unwinding of some of the factors that have contributed to slowing recently, part of our relative optimism has reflected our assessment that the headwinds that have been holding back the recovery are fading with time. We continue to expect the net result will be more improvement in the underlying trend, but, of course, we will continue to review the details of our forecast as more data are reported.

Most immediately, we will review our estimate for Q2 real GDP growth after some key input data are reported in the upcoming week. Currently, risks appear firmly on the downside relative to our 3.5% estimate for the annualized pace, although we expect many forecasters will have to raise their estimate in the week ahead. The consensus appears to be close to 2.0%.

The index of hours worked rose at a 3.3% annual rate in Q2, up from a 2.0% pace in Q1. While productivity growth can fluctuate significantly, the pattern in hours worked looks consistent with a pickup in GDP growth in Q2 after what appears to have been exaggerated weakness in Q1. More direct input data for estimating Q2 GDP will be released in the week ahead.
%q/q, saar 5.5 Q2 Q1

The overall ISM indexes looked consistent with only about a 2.8% annual rate for real GDP growth in Q2, although the 1.9% annual rate reported for GDP growth in Q1 was much weaker than suggested by the ISM datathe ISM data looked consistent with about a 5.0% pace in Q1. The pattern has raised the potential for some payback in GDP for exaggerated weakness in Q1.
index, sa
3 /1 /9 8 3 /1 /9 9 3 /1 /0 0 3 /1 /0 1 3 /1 /0 2 3 /1 /0 3 3 /1 /0 4 3 /1 /0 5 3 /1 /0 6 3 /1 /0 7 3 /1 /0 8 3 /1 /0 9 3 /1 /1 0

66 57 48 39

%q/q, saar 8
3 /1 /1 1 3 /1 /1 2

0.0

Jun Q1

4 0 -4 -8

-5.5

-11.0 06 07 Real GDP 08 09 10 11 12

30 98 00 02 04 06 Composite ISM* (l) 08 10 12 Real GDP (r)

Index of hours worked

Source: Bureau of Economic Analysis and Bureau of Labor Statistics

*Economy-weighted average of manufacturing and non-manufacturing indexes (calculated by Haver Analytics) Note: Shaded bars represent periods of recession Source: Institute for Supply Management, Haver Analytics, Bureau of Economic Analysis, and MF Global

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

MF GLOBAL U.S. ECONOMIC FORECAST SUMMARY

% change from previous period, annual rate (ar), except where noted; forecasts in bold 2010 Q1 REAL GDP FINAL SALES DOMESTIC FINAL SALES NET EXPORTS (pct pt contr) INVENTORIES (pct pt contr) CONSUMPTION BUSINESS FIXED INVESTMENT STRUCTURES EQUIPMENT & SOFTWARE RESIDENTIAL INVESTMENT EXPORTS IMPORTS GOVERNMENT INVENTORIES (ch $bil ar) CPI CORE CPI CORE PCE PRICES UNEMPLOYMENT (%, level) FEDERAL BUDGET BAl ($bil, fy) % OF GDP INTEREST RATES (%, level, eop) FED FUNDS TARGET 2-YEAR TREASURY 10-YEAR TREASURY 0.13 1.0 3.8 0.13 0.6 3.0 0.13 0.4 2.5 0.13 0.6 3.3 0.13 0.8 3.5 0.13 0.5 3.2 0.13 1.1 3.6 0.13 1.5 3.9 0.1 0.7 3.2 0.1 1.0 3.5 1.0 2.2 4.1 0.13 0.6 3.3 3.7 1.1 1.3 -0.3 2.6 1.9 7.8 -17.8 20.5 -12.3 11.4 11.2 -1.6 44 1.3 0.0 1.2 9.7 Q2 1.7 0.9 4.3 -3.5 0.8 2.2 17.2 -0.5 24.8 25.6 9.1 33.5 3.9 69 -0.5 0.8 1.0 9.6 Q3 2.6 0.9 2.6 -1.7 1.6 2.4 10.0 -3.6 15.4 -27.3 6.7 16.8 3.9 121 1.4 1.1 0.5 9.6 Q4 3.1 6.7 3.2 3.3 -3.4 4.0 7.7 7.7 7.7 3.3 8.6 -12.6 -1.7 16 2.6 0.6 0.4 9.6 Q1 1.9 0.6 0.5 0.1 1.3 2.2 2.0 -14.8 8.7 -1.9 7.7 5.1 -5.8 56 5.2 1.7 1.6 8.9 Q2 3.5 3.0 1.6 1.4 0.5 1.0 7.9 8.0 8.0 2.0 12.5 1.8 0.5 71 3.9 2.4 1.9 9.1 2011 Q3 4.0 4.1 3.8 0.2 -0.1 3.5 9.4 5.0 11.0 12.0 11.0 7.5 1.2 68 1.1 1.7 1.4 9.0 Q4 4.0 4.4 4.0 0.2 -0.4 3.5 11.3 4.0 14.0 12.0 11.0 7.5 1.5 55 1.1 1.5 1.2 8.8

CALENDAR AVERAGE
2010 2.9 1.4 1.9 -0.5 1.4 1.7 5.7 -13.7 15.3 -3.0 11.7 12.6 1.0 63 1.6 1.0 1.3 9.6 -1294 -9.2 2011 2.9 2.9 2.3 0.5 0.0 2.6 7.5 -0.8 10.7 0.0 9.4 4.2 -0.7 62 2.9 1.5 1.2 9.0 -1350 -8.9 2012 3.9 3.9 3.4 0.3 0.0 3.3 8.3 4.7 9.6 13.6 11.4 7.1 0.6 62 1.9 1.9 1.8 8.2 -1050 -6.5 2010 2.8 2.4 2.9 -0.6 -0.3 2.6 10.6 -4.0 16.9 -4.6 8.9 10.9 1.1 16 1.3 0.7 0.8 9.6

Q4/Q4 2011 3.3 3.0 2.5 0.5 0.3 2.5 7.6 0.1 10.4 5.8 10.5 5.5 -0.7 55 2.8 1.8 1.5 8.8 2012 3.9 3.8 3.5 0.3 0.1 3.4 7.5 4.7 8.5 16.0 11.5 7.5 0.2 63 2.1 2.0 1.7 7.9

End of year 0.13 1.5 3.9 1.5 2.5 4.2

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, US Treasury, Federal Reserve Board, and MF Global

FORECAST SUMMARY We believe much of the weakness in real GDP in Q1 reflected volatility and weather effects rather than a weaker trend, with payback likely in Q2; we forecast a 3.5% annual rate for Q2 following 1.9% in Q1. The net result is a 2.7% first-half average, weaker than data were suggesting as the year began, with much of the setback likely due to the Q1 spike in energy costs and supply chain effects stemming from the crisis in Japan. We still forecast a 4.0% pace in the second half of this year, although recent data clearly suggest downside risk. Real GDP growth averaged 2.9% at an annual rate in the first year and a half of the recovery (through 10Q4). Prior to the latest data, employment growth appeared to be picking up significantly in 2011. We expect momentum to pick up again soon, consistent with at least a gradual downtrend in the unemployment rate. Although the unemployment rate rose in Q2, the 9.2% level in May was down from 9.6%, on average, in 10Q4.

While we believe ample slack will keep inflation fairly tame, even core inflation now appears to be edging up again. We expect the pace in the core PCE price index to move up from 0.8% in 2010 to 1.5% in 2011 and 1.7% in 2012 (Q4/Q4). Overall inflation will likely be higher than core inflation this year, due to a net rise in food and energy prices. A still-high (but declining) unemployment rate and tame inflation will likely allow the Fed to be patient in unwinding stimulus; we forecast a still-low 1.5% funds rate at the end of 2012, with the first increase in Q1 of 2012. Some tightening in 2012 will likely also come via Fed balance sheet shrinkage; we expect Fed officials to hold the balance sheet constant in 11H2. We expect Treasury yields will rise, with 10year yields up to 3.9% at the end of 2011 and 4.2% at the end of 2012.

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

DATA PREVIEW

CONFERENCE BOARD CEO CONFIDENCE SURVEY (MON, JUL 11, 13:00)

index CEO CONFIDENCE INDEX CURRENT ECONOMIC CONDITIONS VS. 6 MONTHS AGO EXPECTATIONS FOR ECONOMY, 6 MONTHS AHEAD EXPECTATIONS FOR OWN INDUSTRY, 6 MONTHS AHEAD CURRENT ECONOMIC CONDITIONS IN OWN INDUSTRY VS. 6 MONTHS AGO Source: The Conference Board 10Q3 50 50 49 51 52 10Q4 62 62 62 61 60 11Q1 67 72 68 62 65 11Q2

The NFIB small business optimism index was historically low even before the declines in the last few months. It probably started to recover in June. A rise in the hiring plans component has already been reported. GDP has consistently shown less weakness than implied by the NFIB index since the recovery began (see chart below). In part, the divergence likely reflects larger credit crunch effects for small businesses than large businesses, although we believe the NFIB index has also overstated weakness in the small business sector recently. The relationship between GDP growth and the NFIB index has broken down in the current cycle, with much less weakness in growth than implied by the index.
index, sa %q/q, saar 10 5 0 May 84 74 80 83 86 89 92 95 98 01 04 07 10 13 -5 -10

The Conference Boards CEO confidence index, which mainly tracks large businesses, probably slipped to a still-high level in Q2, consistent with the pattern already reported in the Business Roundtable survey. The Q1 reading was the highest since Q2 of 2004. In general business confidence has recovered much more than consumer confidenceat least for large firms. Business confidence has likely held up better than consumer confidence in recent monthsat least for large businesses. The Q2 Conference Board CEO index will be reported on July 11.
index, quarterly 76 67 58 49 40 31 22 02 03 04 05 06 07 08 09 10 11 12 Conference Board: CEO confidence (l) Conference Board: consumer expectations (r) index, monthly Q1 Jun

114 104 94

Q1

NFIB index (l) 116 100 84 68 52 36 20

WEEKLY ICSC, %w/w, sa WEEKLY ICSC, %y/y REDBOOK, %y/y

Real GDP (r)

Note: Shaded bars represent periods of recession. Source: National Federation of Independent Business (NFIB), Bureau of Economic Analysis, and MF Global

WEEKLY STORE SALES (TUE, JUL 12, 07:45/08:55)

JUN 18 -0.7 2.2 4.2 APR WEEKLY ICSC, %m/m, sa REDBOOK, %m/m, sa MONTHLY ICSC, %m/m, sa 2.5 1.3 0.3 3.0 5.1 8.5 JUN 25 2.9 3.0 2.5 MAY -2.3 -2.7 -2.6 3.0 3.9 5.4 JUL 2 1.5 3.5 5.2 JUN 0.1 0.9 1.8 2.7 3.8 6.9 JUL THRU 9 JUL 9

Source: The Conference Board

NFIB SMALL BUSINESS SURVEY (TUE, JUL 12, 07:30)

sa OPTIMISM INDEX HIRING PLANS (net %) CREDIT HARDER TO GET (net %) MAR 91.9 2 8 APR 91.2 2 9 MAY 90.9 -1 10 3 JUN

WEEKLY ICSC, %y/y REDBOOK, %y/y MONTHLY ICSC, %y/y

Source: National Federation of Independent Business (NFIB)

Note: monthly data are based on the retail industry's fiscal calendar, the fiscal month of July ends on July 30. Source: International Council of Shopping Centers, Instinet, and MF Global

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

The comprehensive monthly ICSC store sales index showed much more strength than the narrower weekly index in June, although even the weekly index picked up sharply at the end of the month. The Redbook index also showed strength in June.
FOREIGN TRADE (TUE, JUL 12, 08:30)
MAY EST billions of dollars, sa BALANCE NONPETROLEUM GOODS SERVICES EXPORTS IMPORTS PETROLEUM NONPETROLEUM REAL GOODS BAL. ($2005) EXPORTS IMPORTS FEB -46.0 -20.8 -59.7 13.7 165.2 211.3 32.9 178.4 -49.9 96.6 146.5 MAR -46.8 -16.6 -61.1 14.3 173.4 220.2 38.1 182.1 -49.7 101.0 150.6 APR -43.7 -17.6 -58.1 14.4 175.6 219.2 36.0 183.2 -44.2 101.7 146.0 CONS -44.1 MF -44.5

IBD/TIPP ECONOMIC OPTIMISM (TUE, JUL 12, 10:00)

APR TOTAL INDEX 40.8 MAY 42.8 JUN 44.6 JUL

Source: Investor's Business Daily/TechnoMetrica Institute of Policy and Politics

At 44.6, the June reading for the IBD/TIPP index was up from 42.8 in May but down from 48.6, on average, in Q1. Meanwhile, the Rasmussen index is on track for a decline in July, with data available through July 8.
MORTGAGE APPLICATIONS (WED, JUL 13, 07:00)
MBA indexes PURCHASE INDEX WKLY JUN 10 JUN 17 JUN 24 JUL 1 JUL 8 Source: Mortgage Bankers' Association 191.1 185.8 180.3 188.9 4-WK AVG 189.2 187.8 185.0 186.5 REFI INDEX WKLY 2883.7 2675.2 2604.4 2363.6 4-WK AVG 2598.5 2619.4 2659.8 2631.7 30-YEAR MORTGAGE RATE % 4.51 4.57 4.46 4.69

Source: Census Bureau, Bloomberg, and MF Global

Most of the sharp decline in the inflation-adjusted (real) trade deficit in April was probably sustained in May, consistent with net exports adding more than a percentage point to annualized real GDP growth in Q2. The contribution reflects strength in exports and weakness in imports, with the weakness in imports concentrated in motor vehicles from Japan and oil (in real terms).
JOB OPENINGS AND LABOR TURNOVER (JOLTS) (TUE, JUL 12, 10:00)
sa JOB OPENINGS RATE (%) HIRES RATE (%) SEPARATIONS RATE (%) JOB OPENINGS (000s) HIRES (000s) SEPARATIONS (000s) MEMO: NET JOB CREATION (000s) JOLTS (HIRES-SEPARATIONS) PAYROLLS (000s) Source: Bureau of Labor Statistics 161 235 262 194 229 217 25 FEB 2.3 3.1 2.9 3025 3986 3825 MAR 2.3 3.1 2.9 3123 4067 3805 APR 2.2 3.0 2.9 2972 3972 3743 MAY

The purchase index continues to show little net change, consistent with a near-flat trend in home sales. It averaged 189.4 in Q2 following 186.4 in Q1.
IMPORT & EXPORT PRICES (WED, JUL 13, 08:30)
JUN EST nsa IMPORT PRICES (%m/m) NONOIL NONFUEL NONAUTO CONSUMER GOODS MOTOR VEHICLES EXPORT PRICES (%m/m) IMPORT PRICES (%y/y) NONOIL NONFUEL NONAUTO CONSUMER GOODS MOTOR VEHICLES EXPORT PRICES (%y/y) MAR 3.0 0.5 0.8 -0.2 0.5 1.5 10.3 4.3 4.4 0.2 1.9 9.5 APR 2.1 0.6 0.6 0.5 0.2 0.9 11.4 4.4 4.4 0.7 1.8 9.3 MAY 0.2 0.4 0.4 0.3 0.5 0.2 12.5 4.5 4.4 0.9 2.3 9.0 13.2 12.9 CONS -0.6 MF -0.8

Source: Bureau of Labor Statistics, Bloomberg, and MF Global

Job openings probably picked up again in June after dropping in May.

Some of the recent commodity-led surge in import prices was probably reversed in June.

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

Nonauto consumer goods import prices show a net pickup in recent months, consistent with dollar depreciation, although they are still up just 0.9% y/y. The recent pickup has been led by imports from China (see charts). At 0.9%, the y/y change in nonauto consumer goods import prices in May was up from -0.2% y/y six months earlier, likely accounting for some of the recent acceleration in the core goods CPI.
%y/y 4 2 0 -2 -4 -6 -8 07 08 09 10 11 Nonauto consumer goods import price (l) Core goods CPI (l) Real broad dollar index (r) Jun May %y/y, inverted -12 -7 -2 3 8 13 18

The June budget report will provide some important input data for adding up Q2 GDP; weakness in defense spending looked exaggerated in Q1.
RETAIL SALES (THU, JUL 14, 08:30)
JUN EST sa TOTAL (%m/m) EX AUTOS EX AUTOS & GAS EX AUT, BLDG MATS, & GAS MOTOR VEHICLES & PARTS FURNITURE & FURNISHINGS ELECTRONICS AND APPLIANCES BLDG MATS, GARDEN EQUIP FOOD & BEVERAGE HEALTH & PERSONAL CARE GASOLINE STATIONS CLOTHING & ACCESSORY SPORT, HOBBY, BOOKS, MUSIC GENERAL MERCHANDISE MAR 0.8 1.2 0.8 0.6 -1.4 2.7 2.7 3.0 0.3 0.6 3.8 1.0 0.7 0.4 -2.0 0.4 1.1 7.5 6.9 5.3 5.3 APR 0.3 0.5 0.3 0.3 -0.7 -1.2 -1.2 0.5 1.2 -1.0 1.4 0.1 -0.3 0.6 2.0 1.3 -0.8 7.3 6.8 4.9 5.7 MAY -0.2 0.3 0.3 0.2 -2.9 -0.7 -1.3 1.2 -0.5 0.8 0.3 0.2 -0.4 -0.1 2.1 1.2 0.6 7.7 8.2 6.2 6.1 7.9 8.1 6.3 6.2 -3.5 0.5 CONS x x x MF -0.2 -0.1 0.5 0.5 -0.6

Source: Federal Reserve Board and Bureau of Labor Statistics

Prices for goods from China were up 2.8% y/y in May, up from 0.7% y/y six months earlier. Prices have risen at a 4.6% annual rate in the last six months.
% y/y, both scales -10 -8 -6 -4 -2 0 2 05 06 07 08 09 10 11 12 Yuan/U.S. dollar (l) Prices for U.S. goods imports from China (r)
Source: Federal Reserve Board and Bureau of Labor Statistics

MISCELLANEOUS NONSTORE RETAILERS FOOD & DRINKING PLACES TOTAL (%y/y)

8 6 4 May Jul 8 2 0 -2 -4

EX AUTOS EX AUTOS & GAS EX AUT, BLDG MATS, & GAS

Source: Bureau of the Census, Bloomberg, and MF Global

Retail sales likely fell again in June, dragged down by a decline in auto sales and price-related weakness in the gasoline component. (The data are nominal.) Excluding autos and gas, sales probably picked up. We estimate our June forecast is consistent with total real consumption increasing by less than 1% at an annual rate in Q2, a slowing from the 2.2% pace in Q1. We expect growth to reaccelerate in Q3, helped by the boost to real spending power from declining gasoline prices.

FEDERAL BUDGET (WED, JUL 13, 14:00)

JUN EST billions of dollars, nsa MONTHLY BALANCE YEAR-AGO LEVEL FY-TO-DATE BALANCE* YEAR-AGO LEVEL MAR -188.2 -65.4 -829.4 -717.0 APR -40.4 -82.7 -869.8 -799.7 MAY -57.6 -135.9 -927.4 -935.6 -1004.0 CONS x -68.4 MF -45.0 -68.4 -972.4 -1004.0

*Fiscal year starts in October. Source: US Treasury, Congressional Budget Office, Bloomberg, and MF Global

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

JOBLESS CLAIMS (THU, JUL 14, 08:30)

NEW CLAIMS (000s, sa) WKLY JUN 4 JUN 11 JUN 18*** JUN 25 JUL 2 JUL 9 CONS MF 430 420 429 432 418 412 430 4-WK AVG 425 426 426 428 425 423 427 CONTINUING CLAIMS (000s) REGULAR sa 3702 3714 3724 EXTENDED* nsa 3953 3935 3847 sa** 4192 4186 4079 TOTAL sa** 7894 7900 7803

Industrial commodity prices have stopped surging, at least temporarily.

index, sa 400 350 300 250 200 150 04 05 06 07 08 09 10 11 12 index, nsa May Jul 7 635 568 501 434 367 300

*Sum of federal extended and emergency claims **Using seasonal factors for regular continuing claims ***Sample week for employment report Source: Department of Labor, Bloomberg, and MF Global

Core crude goods PPI (l) CRB spot index: raw industrial materials (r)
Source: Bureau of Labor Statistics and Commodity Research Bureau

Jobless claims tend to be more volatile than usual in late June and early July, reflecting the impact of temporary summer shutdowns. Through the volatility, we expect the data to start signaling renewed upward momentum soon (with claims declining). However, the upcoming reading will likely be boosted by filings stemming from budget-dispute-related furloughing of state workers in Minnesotapotentially by 15,000-20,000. The July 2 reading was boosted by around 2,500.
PRODUCER PRICE INDEX (THU, JUL 14, 08:30)
JUN EST seasonally adjusted unless noted MAR 0.7 0.3 0.9 -2.3 5.8 1.9 5.6 19.1 APR 0.8 0.3 1.1 2.6 6.8 2.1 5.6 18.3 MAY 0.2 0.2 0.9 -0.9 7.3 2.1 6.3 19.2 7.4 2.2 7.4 2.2 CONS -0.2 0.2 MF -0.2 0.2

The core finished goods PPI was up 2.1% y/y in May, up from a 1.3% y/y pace 12 months earlier. Core intermediate prices are signaling more acceleration in coming months.
% y/y, nsa 12 9 6 3 0 -3 -6 -9 04 05 06 07 08 09 10 11

May

FINISHED GOODS (%m/m) CORE (EX FOOD & ENERGY) CORE INTERMEDIATE (%m/m) CORE CRUDE (%m/m) FINISHED GOODS (%y/y, nsa) CORE (EX FOOD & ENERGY) CORE INTERMEDIATE (%y/y, nsa) CORE CRUDE (%y/y, nsa)

Core finished goods PPI

Source: Bureau of Labor Statistics

Core intermediate goods PPI

BUSINESS INVENTORIES (THU, JUL 14, 10:00)

MAY EST sa INVENTORIES (%m/m) SALES (%m/m) FEB 0.7 0.3 1.27 MAR 1.3 2.4 1.25 APR 0.9 0.1 1.26 CONS 0.8 MF 0.9 -0.1 1.28

Source: Bureau of Labor Statistics, Bloomberg, and MF Global

The finished goods PPI probably slowed sharply in June, with a decline in gasoline prices only partly offset by a pickup in food prices. Core finished goods prices will likely continue to show a net pickup. At 2.1%, the y/y change in core finished goods prices in May was up from 1.3% 12 months earlier. The uptrend is consistent with a sharp pickup in core prices at earlier stages of production recently, even with net slowing in core crude goods prices in the last few months. Core crude goods prices likely fell again in June (see chart).

INVENTORY/SALES RATIO

Source: Census Bureau, Bloomberg, and MF Global

Manufacturing and wholesale inventories have already been reported up 0.8% m/m and 1.8% m/m, respectively, in May. Our 0.9% m/m estimate for total inventories includes 0.4% m/m for the retail component.

10

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

Our estimate implies a slight slowing in total inventories from the 1.0% per month pace averaged in Q1. However, the deceleration has likely been more than accounted for by a slowing in price gains, particularly for commodities. (The data are nominal.) In real terms, inventories appear to have picked up in Q2.
FED BALANCE SHEET (THU, JUL 14, 16:30)
billions of dollars unless noted, nsa TOTAL FED ASSETS %y/y SECURITIES HELD OUTRIGHT US TREASURIES FEDERAL AGENCY MORTGAGE-BACKED OTHER LOANS PRIMARY CREDIT TALF MAIDEN LANE LLC (I*, II**, & III***) CENTRAL BANK LIQY SWAPS OTHER ASSETS
MONETARY BASE (2-wk avg)

N.Y. FED MANUFACTURING SURVEY (FRI, JUL 15, 08:30)

JUL EST indexes, sa APR 21.7 22.3 23.1 57.7 26.9 47.4 29.5 MAY 11.9 17.2 24.7 69.9 28.0 52.7 30.1 JUN -7.8 -3.6 10.2 56.1 11.2 22.5 26.5 CONS x MF 7.0

CURRENT ACTIVITY NEW ORDERS EMPLOYMENT

JUN 22 2860 21.8 2635 1602 118 914 13 0 13 61 0 152 2629 31.9

JUN 29 2869 22.9 2643 1617 117 909 13 0 13 61 0 153 2629 31.9

JUL 6 2874 23.1 2648 1625 115 909 13 0 12 60 0 153

JUL 13

PRICES PAID PRICES RECEIVED 6-MONTH OUTLOOK 6-MONTH CAPEX PLANS

Source: Federal Reserve Bank of New York, Bloomberg, and MF Global

The national ISM index showed improvement in June, in contrast to the sharp weakening in the New York Fed survey. To some extent, the contrast may have reflected momentum turning from negative to positive during the monthsince the cutoff point came later in the ISM sample than the NY Fed sample. We expect the NY survey will start showing improvement in July.
CONSUMER PRICE INDEX (FRI, JUL 15, 08:30)
JUN EST %m/m, sa, unless noted TOTAL CPI FOOD ENERGY CORE CORE (before rounding) COMPONENTS (% of core) SHELTER (41.6%) RESIDL RENT (7.7%) OER (32.4%) LODGING (1.0%) FURNISH/OPS (5.9%) APPAREL (4.8%) NEW VEHICLES (5.6%) 0.1 0.1 0.1 0.8 -0.1 -0.5 0.7 0.8 1.9 0.2 0.0 0.1 -0.1 2.7 1.2 0.2 1.6 223.467 1.0 0.1 0.1 0.1 0.0 0.2 0.2 0.7 1.2 0.3 0.4 0.0 0.1 0.1 3.2 1.3 0.7 1.6 224.906 0.6 0.2 0.1 0.1 2.9 0.2 1.2 1.1 1.1 -1.3 0.2 0.3 0.1 -0.2 3.6 1.5 1.2 1.6 225.964 0.5
224.8

MAR 0.5 0.8 3.5 0.1 0.135

APR 0.4 0.4 2.2 0.2 0.185

MAY 0.2 0.4 -1.0 0.3 0.287

CONS -0.1

MF -0.3 0.3 -4.3

% y/y

* Bear Stearns assets. ** AIG CDO assets. *** RMBS assets. Source: Federal Reserve Board

0.2

0.2

Fed officials have been assuming that every $200 billion increase in total Fed assets provides stimulus equivalent to 25 bps on the funds rate. Based on that arithmetic, the $2 trillion increase since 2008 has provided stimulus equivalent to around 250 bps on the funds rate. (See our Taylor Rule analysis in the June 24, 2011 issue.)
MONETARY AGGREGATES (THU, JUL 14, 16:30)
JUN 13 M1 (billions of $, saar) %ch from 13 weeks ago, saar %y/y M2 (billions of $, saar) %ch from 13 weeks ago, saar %y/y Source: Federal Reserve Board 1936 15.6 12.8 9038 6.5 5.4 JUN 20 1946 11.9 12.4 9068 7.8 5.4 JUN 27 1955 11.2 12.3 9144 11.6 6.0 JUL 4

USED VEHICLES (2.6%) AIRFARES (1.0%) MEDICAL CARE (8.4%) RECREATION (8.3%) EDUC, COMMUN (8.3%) OTHER (4.5%) TOTAL CPI (%y/y, nsa) CORE GOODS SERVICES TOTAL CPI (index, nsa) %m/m

3.6 1.6

3.5 1.6

At 6.0%, the y/y change in M2 is up from 4.3% in Q1 and 2.3% in all of 2010.

-0.1

Source: Bureau of Labor Statistics, Bloomberg, and MF Global

11

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

The total CPI probably fell in June, led by a sharp drop in gasoline prices. Core prices probably continued to show a net pickup, albeit not to the degree implied by last months 0.3% m/m rise. That 0.3% increase boosted the year-to-date pace in core prices to 2.4% at an annual rate from 2.1% through May; the core CPI rose just 0.8% in 2010 (December to December). Moreover, the pickup has been fairly broad-based (see table). The recent weakening in commodity prices will likely contribute to some slowing in core prices in coming months, to the extent the recent acceleration in core prices may have reflected some passthrough effects. Both new and used vehicles prices are also likely to slow, with the sharp pickup recently probably exaggerated by inventory shortages related to Japan supplychain effects. Conversely, the trend in import prices suggests further acceleration in the apparel component (see chart), while rents are likely to continue accelerating if the labor market continues to show net improvement, as we expect. The overall CPI was up 3.6% y/y in May, a pickup from 1.5% y/y in December. It has risen at a 5.1% annual rate so far this year (May vs. December). The recent decline in oil prices is likely to lead to a reversal of some of that pickup in coming months starting with the upcoming report for June. The core CPI has also accelerated this year, to 1.5% y/y in May from 0.8% y/y in December.
%y/y, nsa 6 3 0

The core CPI shows a 2.4% annual rate so far this year (May vs. December), up from 0.8% in 2010 (December to December).The pickup has been fairly broad-based, although two categories have been especially important contributors: shelter (mainly rents) and vehicles.
% ch, annual rate, unless noted 2010* 2011 THRU MAY** 2.4 1.3 1.5 1.1 6.3 1.1 2.3 8.4 7.2 13.1 3.2 1.7 1.6 0.2 ACCEL/ DECEL. (2011 vs. 2010, pct pcts) 1.6 0.9 0.7 0.9 3.8 3.6 3.4 8.6 3.5 7.3 -0.1 2.4 0.3 -1.7 CONTRIBUT. TO ACCEL/DECEL pct pts.) 1.6 0.4 0.1 0.3 0.0 0.2 0.2 0.5 0.1 0.1 0.0 0.2 0.0 -0.1

CORE CPI SHELTER (41.6%) RESIDL RENT (7.7%) OER (32.4%) LODGING (1.0%) FURNISH/OPS (5.9%) APPAREL (4.8%) NEW VEHICLES (5.6%) USED VEHICLES (2.6%) AIRFARES (1.0%) MEDICAL CARE (8.4%) RECREATION (8.3%) EDUC, COMMUN (8.3%) OTHER (4.5%)

0.8 0.4 0.8 0.3 2.5 -2.5 -1.1 -0.2 3.7 5.8 3.3 -0.8 1.3 1.9

*December 2010 vs. December 2009 (nsa) **May 2011 vs. December 2010 (sa) Source: Bureau of Labor Statistics and MF Global

May

A pickup in apparel prices in the CPI looks consistent with the pattern in import prices. Indeed, apparel import prices are signaling further acceleration.
8 % y/y, nsa

-3 05 06 07 08 09 10 11

6 4 May 2

Total CPI
Source: Bureau of Labor Statistics

Core CPI

0 -2 07 08 CPI: apparel 09 10 11

Import prices: apparel & accessories, manufactured goods

Source: Bureau of Labor Statistics

12

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

Weakening in TV import prices has offset part of the impact of the surge in apparel import prices on overall consumer goods import prices, although the data have not shown much correlation with TV prices in the CPI.
0 -5 -10 -15 -20 -25 -30 07 08 09 10 11 CPI: television sets Import prices: television and video receivers May % y/y, nsa

INDUSTRIAL PRODUCTION (THU, JUL 15, 09:15)

JUN EST sa TOTAL PRODUCTION (%m/m) MANUFACTURING EX AUTOS CAPACITY UTILIZATION (%) MANUFACTURING MAR 0.6 0.6 0.4 76.8 74.7 APR 0.0 -0.5 -0.1 76.7 74.2 MAY 0.1 0.4 0.6 76.7 74.5 77.0 76.8 74.3 CONS 0.3 MF 0.2 -0.2

Source: Federal Reserve Board, Bloomberg, and MF Global

Industrial production probably barely rose in June, even with a strong rise in utilities. Manufacturing output likely fell.
UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT (FRI, JUL 15, 09:55)
JUL PRELIM APR MAY 74.3 81.9 69.5 JUN 71.5 82.0 64.8 CONS 72.5 MF 68.0

Source: Bureau of Labor Statistics

SENTIMENT INDEX CURRENT CONDITIONS

69.8 82.5 61.6

The key rental components of the core CPI have picked up noticeably in the past year. The pace has slowed a little again in the last couple of reports.
% ch from 3 months earlier, saar 6 5 4 3 2 1 0 -1 01 02 03 04 05 06 07 08 09 10 11 CPI: owners' equivalent rent CPI: rent of primary residence
Source: Bureau of Labor Statistics

EXPECTATIONS INFLATION EXPECTATIONS 1-YEAR (median, %) 5-10 YEAR (median, %)

4.6 2.9

4.1 2.9

3.8 3.0

Source: University of Michigan, Bloomberg, and MF Global

May

At 71.5, the June reading for the Michigan sentiment index was up from the recent low of 67.5 in March but down from 74.3 in May. The Rasmussen index is signaling a bit more slippage in early July. The daily Rasmussen index has been slipping in recent days.
index, monthly 80 Jun Jul 8 60 65 index, daily 95

70

80

50 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 University of Michigan sentiment index (l) Daily Rasmussen consumer index (r)
Source: University of Michigan and Rasmussen Reports

50

13

Economic Analysis | US 7/8/2011 | MACRO FOR MARKETS

July 4July 29
MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY

4
Independence Day Markets closed

5
(10:00) May Factory Orders (11:00) 4-wk Bill Announcement (11:30) 3- & 6-mth Bill Auction

6
(07:00) Mortgage Apps (07:45/08:55) Store Sales (08:30) Jun NonMfg ISM (11:00) Fed purchase op (11:30) 4-wk Bill Auction

7
(08:15) June ADP (08:30) Initial Claims (11:00) 3- & 6-mth Bill, 3-yr, 10yr (r) Note, & 30-yr (r) Bond Announcement (12:30) KC Feds Hoenig Jun Chain Store Sales

8
(08:30) Jun Employment (10:00) May Wholesale Trade (15:00) May Consumer Credit

11
(11:00) Fed purchase op (11:00) 4-wk Bill Announcement (11:30) 3- & 6-mth Bill Auction (13:00) Q2 CEO Confidence

12
(07:30) Jun NFIB (07:45/08:55) Store Sales (08:30) May Foreign Trade $44.5(bil)e (10:00) Jul IBD/TIPP (10:00) May JOLTS (11:30) 4-wk Bill Auction (13:00) 3-yr Note Auction (14:00) FOMC Minutes

13
(07:00) Mortgage Apps (08:30) Jun Imp Prices -0.8%e (09:10) Boston Feds Rosengren (10:00) Fed Chairman Bernanke to deliver semiannual monetary policy report testimony to the House Financial Services Committee (13:00) 10-yr (r) Note Auction (13:20) Dallas Feds Fisher (14:00) Jun Budget -$45.0(bil)e (14:00) Month-ahead Treasury purchase op schedule from NY Fed

14
(08:30) Initial Claims 430Ke (08:30) Jun Retail Sales -0.2%e Ex Autos -0.1%e (08:30) Jun PPI -0.2%e Core PPI 0.2%e (10:00) May Inventories 0.9%e (10:00) Fed Chairman Bernanke to deliver semiannual monetary policy report testimony to the Senate Banking Committee (11:00) 3- & 6-mth Bill and 10yr TIPS Announcement (13:00) 30-yr (r) Bond Auction

15
(08:30) Jun CPI -0.3%e Core CPI 0.2%e (08:30) Jul NY Fed 7.0e (09:15) Jun Indust Prod 0.2%e (09:55) Jul prelim Michigan 68.0e

18
(09:00) May TICS (10:00) Jul NAHB HMI (11:00) 4-wk Bill Announcement (11:30) 3- & 6-mth Bill Auction

19
(07:45/08:55) Store Sales (08:30) Jun Starts/Permits (11:30) 4-wk Bill Auction (19:30) KC Feds Hoenig

20
(07:00) Mortgage Apps (10:00) Jun Exist Home Sales

21
(08:30) Initial Claims (08:30) Chicago Feds Evans (10:00) May FHFA (10:00) Jun Lead Ind (10:00) Jul Phil Fed. (11:00) 3- & 6-mth, & 1-yr Bill, and 2-yr, 5-yr, & 7-yr Note Announcement (13:00) 10-yr TIPS Auction

22

25
(10:30) Jul Texas Mfg. (11:00) 4-wk Bill Announcement (11:30) 3- & 6-mth Bill Auction

26
(07:45/08:55) Store Sales (09:00) May S&P/CS (10:00) Jul Cons. Cof. (10:00) Jul Richmond Fed (10:00) Jun New Home Sales (11:30) 4-wk and 1-yr Bill Auction (13:00) 2-yr Note Auction

27
(07:00) Mortgage Apps (08:30) Jun Durables (13:00) 5-yr Note Auction (14:00) Beige Book

28
(08:30) Initial Claims (10:00) Jun PHSI (11:00) Jul KC Fed (11:00) 3- & 6-mth Bill Announcement (13:00) 7-yr Note Auction (14:30) SF Feds Williams

29
(08:30) Q2 GDP (1st est), including annual revision (08:30) Q2 ECI (09:45) Jul Chicago PMI (09:55) Jul Michigan (10:00) Jul Milwaukee PMI (10:00) Q2 Housing Vacancies (15:15) Atlanta Feds Lockhart and St. Louis Feds Bullard

MARKET LETTER DISCLAIMER (this is not a research report): This market letter was prepared for informational purposes only. It is based upon information generally available to the public from sources believed to be reliable, but MF Global Inc. makes no representation that it is accurate, complete, current, or that any returns indicated or projections made will be achieved. MF Global is not responsible for any errors or omissions in this market letter. Changes to assumptions may have a material impact on projections or returns contained or made herein. Furthermore, past performance is not necessarily indicative of future results. Additional information regarding the information contained in this market letter is available from MF Global upon request. This market letter is neither an offer to sell nor solicitation of any offer to buy a security, nor does it take into consideration the financial status, investment objectives or financial experience of any particular recipient. Because MF Global provides such information as part of a general information service and without regard to an investors particular circumstances, neither it nor its subsidiaries and/or affiliates shall be liable for any loss or damages arising directly or indirectly out of any inaccuracy in the market letter or the use of such information. Copyright by MF Global Inc. (2011) 717 Fifth Avenue New York, NY 10022. MF Global Inc. is a registered futures commission merchant, a member of the NFA, and a registered broker-dealer and member of the CBOE, FINRA, NYSE, and SIPC. 14