Traders ignore record business confidence indicators in Europe as they wait for US payrolls data to provide direction Despite the Euro's strong performance in 2006, the business climate indicator for the Eurozone rose to 1.60, its highest ever level. More notably, the data showed that European production expectations for the months ahead decreased only marginally. Eurozone retail sales for November came in slightly below expectations, despite expectations that German consumers might have brought forward big-ticket purchases in anticipation to the VAT rise. Falling energy prices lowered inflationary pressures at the factory gate as Eurozone PPI for December stayed flat on a mnth/mnth basis, but PPI was still up 4.3% on an annual basis due to the rising energy costs seen at the start of 2006. Unemployment in the Eurozone remained at 7.6%, as the ECB fears that January wage negotiations and robust labor markets may place upward pressure on wage inflation. Ahead of the European open, 2yr gilt yields traded in positive territory, but dropped after HBOS said that UK house prices declined during December (UK DEC HBOS HOUSE PRICES MOM: -1.0% V 1.0%E; QOQ: 9.9% V 10.3%E). HBOS added that UK house prices will continue to rise, and that it remains too early to conclude that this indicates a genuine slowdown in the housing market. Strong house prices have boosted consumer sentiment among Britons during 2006, but recent data showed that consumer confidence in the UK fell more than expected in December. There was a deterioration of French consumer confidence, as the French become increasingly worried over their jobs situation and their ability to save. (Dec Jobless fears rose to 26 from prior reading of 9). A day after French PM Chirac urged the ECB to use a foreign exchange strategy for growth, a French minister said that more political dialogue is needed with the ECB. The French remain vocal over the recent strength in the Euro. Nokia shares traded sharply lower after an analyst downgrade and Motorola lowering guidance, as low phone pricing and margins continue to weigh on the stock. AirFrance was trading up more than 1.0% on a press report that the company may bid for Alitalia as M&A in the airline industry continues. Suez shares climbed after newspaper reports that the company's largest shareholder, Belgian tycoon Albert Frere, has raised his stake. In foreign exchange markets, commodity currencies made a slight recovery after bargain hunters provided a floor for commodity prices during Asian trading. Traders now await the US nonfarm payrolls, with a derivative auction settling at a reading of 82.2K, while others say that the reading could surprise to the upside given the increase in services jobs seen in the recent ADP report. The risks remain to the downside after the drop in the Monster.com employment index, the Hudson employment index and the first negative ADP reading since April 2003.