The payrolls report released by Automatic Data Processing Inc. on Wednesday showed a loss of 79k U.S. jobs in June, marking the worst decline on record since November 2002. The previous month's data was revised down to a 25k gain from an originally reported 40k advance. The figure was worse than expectations looking for a pullback of 20k jobs.

The service providing sector was responsible for a -3k decline in employment, marking the first decline since November 2002, while jobs in the goods producing sector fell 76k and manufacturing pulled back 44k.

"This weaker ADP figure backs up what most of the other indicators have been telling us: conditions in the labour market are still weakening, albeit gradually," said Paul Ashworth, senior U.S. economist at Capital Economics. He noted the data are consistent with a monthly decline worse than 100k in the BLS nonfarm payrolls report.

"Expect a weak official report [Thursday]," added Ian Shepherdson, chief U.S. economist at HFE, who called the previous month's 15k downward revision "grim."

Meanwhile, U.S. crude oil stockpiles decreased by 1982k barrels in the week ending June 27, against expectations for a 700k decrease, the Energy Information Administration reported. Crude inventories have now declined in six of the past seven weeks at a time of year where inventories historically increase. Gasoline inventories were expected to rise 500k barrels on the week but increased by 2100k. Distillate inventories slightly undershot expectations for a 1500k build by increasing 1264k.

Speaking at a conference in Israel, Federal Reserve board Governor Frederic Mishkin said he currently sees an "upside risk" to inflation expectations and that the Fed wants to contain those expectations. Mishkin also said Europe is currently facing the headwinds from the current financial turmoil and that the U.S. will continue to face substantial headwinds for some time. However, Mishkin did say the "extreme stress" in markets appears to have abated and that consumer spending has been holding up better than expected.

Speaking in London on the subjects of capital markets and global economy, U.S. Treasury Secretary Henry Paulson said the U.S economy is likely to be weighed down by high oil prices. He added that the U.S. economy is facing a trio of headwinds; high energy prices, a housing correction and financial market turmoil.

Speaking at a panel discussion in Washington, D.C., Atlanta Fed President Dennis Lockhart (non-voter) said inflation was at uncomfortable levels and that policy would need to react decisively to counter it if it began to affect wages. Although he promised that he was taking price developments seriously, Lockhart said wages have not yet been affected by inflation. He said the first half of 2009 should see 1% to 2% growth in GDP with little pick up in the second half.

The U.S. Census Bureau's factory orders report came in marginally higher than the consensus forecast on Wednesday, increasing by 0.6% in May to contribute to an annual gain of 5.0%. The prior month's factory orders index was revised to show an increase of 1.3% from the previously reported 1.1% gain. Economists were expecting a gain of 0.5% in the month.

According to Challenger, U.S. planned job cuts declined by 21,767 in June to 81,755, but that figure is still up 46.7% compared to a year ago. In May, planned job cuts rose 13,507 to 103,522. Planned cuts in the automotive sector fell by 27,655 compared to the previous month's increase of 23,105, while cuts to the food sector declined 1,154 after falling 949 in May. Cuts to the energy sector fell 1,147 compared to the increase of 8,564 in May.

Weekly mortgage applications in the United States rebounded in the week ending June 27, according to data released from the Mortgage Bankers' Association (MBA) on Wednesday, which reported a 3.6% week-over-week rise in applications. In the previous week, applications fell by an unrevised 9.3%.

There were no scheduled economic news releases in Canada on Wednesday, but TD Securities released a report showing that Canadian consumers are expected to slow things down in the second half of 2008 and through 2009. Canadian households have been "spending almost like drunken sailors over the past couple of years," the report says, which has provided critical support to the economy when the export-oriented manufacturing sector had been suffering under the weight of a strong currency and flagging U.S. demand.

It was a down day for global equity markets, particularly the S&P TSX Index, which shed more than 400 points on the session on continued fears of a global economic slowdown and significant declines in the mining sector while crude oil prices hit new record high.

Testifying on his appointment to the Treasury committee, Bank of England Monetary Policy Committee member Charles Bean said the UK economy is facing challenging times. Bean said that credit conditions could tighten more than expected and that CPI could undershoot targets in the medium term, adding that it is not easy to fight inflation and growth volatility.

In overnight news, European Central Bank President Jean-Claude Trichet and EU Commissioner Joaquin Almunia continued to express concern about inflation while speaking in Paris.

Trichet emphasized that he would not comment on monetary policy ahead of the ECB's council meeting on Thursday and that nothing in his speech at the Europlace conference should be interpreted as a policy signal. However, in an interview with Germany's Die Zeit newspaper to be published on Thursday, Trichet said inflation could "explode" if the ECB failed to act decisively.

In a Europe 1 radio interview, Almunia expressed concern over current inflation levels, saying the ECB must follow its price stability mandate. Almunia also said he is worried about the economic growth outlook in Europe, as well as the impact of the current financial crisis on the economy.

According to a Eurostat press release, euro zone producer price inflation reached 1.2% in May on a monthly basis, up from the 0.9% growth rate expected. April's figure was revised up from 0.8%. Excluding the costs of energy, producer prices increased 0.3% in monthly terms. Economists had only expected a 6.7% rise. April's growth rate was revised up slightly from 6.1%.

Australian retail sales in May surprised to the upside, rising 0.7% in the month against expectations for a 0.1% rise, the Australian Bureau of Statistics announced. This follows a revised decrease of -0.1% in April and a revised increase of 0.3% in March.

The ABS also reported that building approvals for May declined by 6.5% month-over-month, further than forecasts for a 3.4% decline. In April, approvals expanded by a revised 5.4%. In annualized terms, approvals rose by 0.2% despite forecasts for a 7.2% increase and the previous month's revised 5.2% increase.

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