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Asian equities opened the week broadly lower, following the late selloff in the DOW last
week: with The Nikkei dropping over 200 points. Better than expected Chinese manufacturing
data released over the weekend provided little support to sentiments. In currency markets,
most pairs are staying in range for the moment. The question of when the Fed will scale back
asset purchases will remain a major theme in the market this week. And a number of important
economic data releases from the US will likely drive some volatility. Data to be watched
includes ISM manufacturing today, ISM services on Wednesday and Non-farm payroll on Friday.
Meanwhile, the Reserve Bank of Australia rate decision on Tuesday and the European Central
Bank and Bank of England rate decisions on Thursday will also be watched.
The official manufacturing PMI released from China saw unexpected improvement to 50.8 in
May, from 50.6, versus expectation of a fall to 49.9. The details showed improvements in
new orders and new export orders. The slight pick-up in the reading showed signs of a stabilizing
in the Chinese economy but it's expected that GDP growth could slow down further ahead.
Indeed the International Monetary Fund slashed China's growth projection in 2013 to 7.75%,
down from a prior forecast of 8%. The Organisation for Economic Co-operation and Development
also lowered China's growth projection to 7.8%, down from a prior forecast of 8.5%.
In Europe, the ZEW president Fuest noted that the European Central Bank's expectation of
a gradual recovery in the second half of 2013 is uncertain. He didn't see a recovery in
the Eurozone in its own right. Meanwhile, he noted that recovery in US and growth in
Asian won't be able to generate a demand pull in Europe. Regarding negative deposit rates,
Fuest said it's not a step to be taken now as the "signal would be very negative". The
ECB will meet later this week and is widely expected to stand pat. Focuses will be on
Draghi's comment on negative deposit rates as well as new economic projections.
Swiss National Bank president Jordan said that the pressure on Swiss franc has "weakened",
but "at current level it is still highly valued". He said the central bank would not exclude
any measures to ensure appropriate monetary conditions. The EUR/CHF floor gave swiss companies
"a certain amount of security in planning" but he warned it's still a big challenge to
deal with the exchange rates. Regarding banks, he said SNB has no responsibility to save
banks when then go insolvent. On the data front, Japan capital spending
dropped 3.9% in Q1, less than a expected fall of -5.5%. Australian retail sales rose less
than expected by 0.2% month on month in April. China official PMI released over the weekend
improved to 50.8 in May but HSBC PMI manufacturing was revised down to 49.2. PMI data will be
a major focus today. Swiss SVME PMI is expected to improve to 50.9 in May. Eurozone PMI manufacturing
revision will be released. UK PMI manufacturing is expected to improve to 50.1 in May. From
the US, ISM manufacturing is expected to drop slightly to 50.5 in May.