Sentiments Weighed By China Data, US Non-Farm Payroll Watched

Risk sentiment remains generally weak in Asia after China released disappointing manufacturing data. The official manufacturing PMI dropped sharply from 53.3 to 50.4 in May while the HSBC manufacturing PMI was also revised down to 48.4. Nonetheless, loss is so far limited as markets are speculating the the weak outlook in China's manufacturing will prompt officials add more stimulus to the economy. However, as China has already denied the change of a massive program like that in 2008, any further stimulus would likely be modest at best.

Over in Spain, it's reported that capital outflows totaled EUR 97b during the first quarter of the year, a record high amount, and that's massive comparing to just EUR 21.9b of capital outflow in the Q1 of 2011. IMF and Spain both denied that they're in talk on a bailout program even though Spain's prime minister Soraya Saenz de Santamaria met with IMF's chief Christine Lagarde yesterday. Spain's economy minister Luis de Guindos called the rescue talk "rumors" and "senseless". Guindos also emphasized that 70% of Spanish banks are "perfectly healthy" with problems "concentrated" in the remaining 30% only. But again, it remains unclear how Spain is going to fund the EUR 19b recapitalization of Bankia, not to mention other majors banks if situations arise.

While markets are keeping an eye on developments in Eurozone, focus will also be on today's non-farm payroll report from US. Analysts expect NFP to show 150k job growth in May with unemployment rate unchanged at 8.1%. So far the job market data from US was relatively mixed. Four week moving average of initial claims did improve back from 383k to 374k, but the data jumped back to 383k in the week ended May 25. ADP employment improved from 113k to 133k in May but fell short of expectation of 135k. However, Challenger report showed planned lay off jumped sharply by 67% yoy in May to nearly 62k. The two consumer sentiment report diverged. Nonetheless, even if the NFP figure beat expectation today, the boost to sentiment should be relatively brief. Overall, problems with Eurozone will continue to weigh on markets in near term.

Meanwhile, other data to be watched include swiss retail sales, Eurozone PMI manufacturing revision and unemployment, UK PMI manufacturing, Canada GDP, US personal income and spending and ISM manufacturing.