FOREX TRADING

The ISM non-manufacturing index remained in expansionary territory in February, rising to 53.0, remaining in expansionary territory for the second-consecutive month following the 50.5 reading reported in January. Market expectations going into today’s report were for a more modest rise to 51.0. The February level marks the highest reading for the index since December 2007. Business activity rose to 54.8 in the month from 52.2 in January, while New Orders inched up to 55.0 from 54.7 a month earlier. With respect to inflationary pressures, prices paid moderated to 60.4 in the month from 61.2 in January.

Today’s report that the ISM non-manufacturing index rose more solidly into expansionary territory in February follows Monday’s report that ISM manufacturing dipped slightly in February but still remained strong at 56.5. The strength in both reports is encouraging, although it does not alter our view that overall GDP growth moderated to a 2.5% annual rate in the first quarter of 2010 following the 5.9% inventory-boosted surge in the fourth quarter of 2009.

The employment index rose closer to expansionary territory, rising to 48.6 in February from 44.6 in January, its highest level since April 2008. Furthermore, the improvement in today’s employment index reinforces our view that labour markets continue to improve in spite of our expectation that Friday’s employment situation report will reveal a temporary weather-related setback in February.

The unemployment rate, however, remains elevated, and in spite of recent improvements, overall activity in level terms remains weak. This excess capacity is expected to keep a lid on inflation, allowing policy to remain stimulative until the economy shows further signs of a sustained recovery. We continue to expect the Fed Funds target to remain in its current stimulative 0% to 0.25% range until the fourth quarter of 2010.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.