Markets Stay In Range Ahead Of Manufacturing Data

Asian equities opened the week broadly lower, following the late selloff in the DOW last week. The Nikkei is dropping over -200 pts at the time of writing. Better than expected Chinese manufacturing data released over the weekend provided little support to sentiments so far. In currency markets, most pairs are staying in range for the moment. The question of when Fed will scale back the asset purchase will remain a major theme in the market this week. A number of important economic data from U.S. will probably drive some volatility in the markets. The to watch include ISM manufacturing today, ISM services on Wednesday and the Non-farm payroll on Friday. The RBA rate decision on Tuesday, ECB and BoE 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 sign of stabilizing in the Chinese economy but its expected that GDP growth could slow further ahead. Indeed, the IMF slashed China's growth projection in 2013 to 7.75%, down from the prior forecast of 8%. The OECD also lowered China's growth projection to 7.8%, down from prior forecast of 8.5%.

In Europe, ZEW president Fuest noted that ECB's expectation of a gradual recovery in the second half of 2013 is uncertain. He didn't see a recovery for the eurozone in its own right. Meanwhile, he noted that recovery in U.S. and growth in Asia 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. Focus will be on Draghi's comment on negative deposit rates as well as new economic projections.

SNB president Jordan said that the pressure on Swiss franc has "weakened", but "at current level it is still highly valued". He said the central 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 warned it's still a big challenge to deal with the exchange rates. Regarding banks, he said the SNB has no responsibility to save banks in the event of insolvency.

Latest CFTC data form May 28, showed net positions in yen and that the Aussie deteriorated further from the prior week, while others were relatively steady. The euro net short rose slightly to -84.6k, from -80.9k. The yen net short climbed to new 2013 low at -99.8k, from -95.2k. The Sterling net short was relatively unchanged at -74.5k, slightly better than the 2013 low of -77.0k. Aussie net shorts rose further to -42.3k, from -32.4k. This is the ninth weeks running of position deterioration. The Canadian dollar net short was relatively unchanged at -33.4k.

On the data front, Japan capital spending dropped -3.9% in Q1, less than the expectation of -5.5%. Australia retail sales rose less than expected by 0.2% mom in April. China official PMI released over the weekend improved to 50.8 in May, but the HSBC PMI manufacturing was revised down to 49.2. PMI data will be of major focus today. Swiss SVME PMI is expected to improve to 50.9 in May. The eurozone's PMI manufacturing revision is due for release. The U.K. PMI manufacturing is expected to improve to 50.1 in May. The U.S. ISM manufacturing is expected to drop slightly to 50.5 in May.