A Somewhat Quiet Market Tuesday Despite Data Influx

U.S. ISM non-manufacturing will be followed closely, given the surprise drop in the manufacturing ISM. We expect an improvement, which if confirmed would support the thesis that the weakness in the manufacturing ISM was externally driven rather than reflecting softer domestic demand.

The U.S. ADP employment report together with the employment component in the ISM non-manufacturing will give indications about what to expect from Friday's important labour market report.

European service PMIs are due to be published today. In particular, it will be interesting to see whether the improvement in manufacturing PMIs for Italy and Spain is mirrored in the service data.

Eurozone retail sales covering April are due to be released together with the first revisions of Q1 GDP, including breakdown.

Selected market news

Caught between Monday's IMS report and today's ADP numbers, Thursday's ECB meeting and Friday's non-farm payrolls, yesterday turned out to be a somewhat quiet day on the market.

U.S. bond markets traded more or less flat with the 10Y treasury yield fluctuating around 2.14%, and U.S. equity markets closed with small losses.

Japanese markets have traded with high volatility as Prime Minister Abe outlined his growth strategy. After initially rising 1.6% the Nikkei is, at the time of writing, sharply lower again - seeing USD/JPY back below 100.

European non-core government bonds tightened yesterday with 10-year spreads to Germany lower in Portugal (11bp), Italy (8bp) and Spain (7bp). This in turn helped the EUR/USD sustain its recent gains and trade just below 1.31.

Australian Q1 GDP missed expectations slightly, showing a 2.5% y/y increase (consensus: 2.7%) but has not moved the AUD much (see RBA chart pack).

Scandi markets today

Swedish PMI manufacturing surprised to the upside showing an improvement to 51.9 in May - close to the March reading and hence 2011 levels - and today's service PMI is expected to have improved as well (DBM: 49, consensus: 49.3).

Danish currency reserve data, as expected, showed that Nationalbanken did not intervene in the FX market during May - marking the fourth month without interventions. Hence, near-term rate hikes are not in sight.

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