US indicators hit recessionary levels - Further deterioration likely ? Markets for the week ending 1-Aug

- Initial jobless claims rose to 448k (highest since April 2003)
- Payrolls: July non-farm payrolls fell 51,000 after 62,000 decline in June 08
- Unemployment rate rose to 5.7% with Goldman and Merrill forecasting it to hit 6.25% to 8% from 2H08 to 1H09
- US treasuries advanced as market took the view that interest rate rises before year-end were becoming more unlikely

Scenario:
Although the U.S. economy expanded at 1.9% in Q2 2008, led by the boost of tax rebates on real consumer spending, there's a good chance that growth will slowdown again in Q3 and hit a trough in Q4-08 and Q1-09 as economic and financial weaknesses continue.

Commentary
This week we have seen record earnings announcements from oil companies, alongside depressing results from GM, BA, BT, Vodafone and continuing concerns in the financial sector. Market continues to look towards oil prices after a $20 fall in July for more relief. However, given that US inventories are low, futures curve are flattish till 2016, there is little to suggest that prices will collapse in the short term. Although US motorists are driving less and airlines are grounding uneconomical flights, China and India's thirst for energy will offset any fall in demand for petroleum and keep prices higher for longer.

Eric Tan, London