3 June 2011

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PREVIEW: May US Non-Farm Payrolls due at 1330BST (0730CDT) *********** US Change in Non-Farm Payrolls M/M (May) Exp. +165K (Prev. +244K, Mar +221K) Goldman Sachs Bank of America UBS Deutsche Bank +100K +125K +125K +160K JP Morgan Morgan Stanley Barclays Capital HSBC +175K +175K +190K +210K

Unemployment Rate M/M (May) Exp. 8.9% (Prev. 9.0%, Mar 8.8%)

The month of May remained marred with bad economic data from the US, and witnessed adverse effects of natural disasters in the US and abroad, including recent tornados and floods in the Southern States. Allied with the ongoing geopolitical tension in the MENA region, Eurozone debt concerns, Feds QE2 coming to an end, as well as indecision over a debt ceiling hike in the US weighing upon the economy. It comes as no surprise then that most analysts expect todays payroll reading to show a decline in the number of jobs added to the economy. Looking at the regional surveys from the various Fed districts; New York, Philadelphia, Richmond, Kansas City and Dallas all reported lower manufacturing data as compared to the month of April. A sharp decline in ADP employment change also demonstrated that private sector employment was weak in the month of May. Elsewhere the latest ISM manufacturing data printed its lowest level since Sep09 and a decline was seen in vehicle sales data from the US as compared to last month, which further showed that supply chain disruptions due to recent natural calamities in Japan are having a material effect in the US. Also of note is the weakness in retail sales, and personal consumption/spending in May, whereas the PPI figures showed a jump compared to last month. This emphasises the fact that producers are finding it increasingly difficult to pass on the cost to retailers and consumers, and may opt for cuts elsewhere, including reducing their workforce. Overall, this months payroll data is likely to disappoint, however its extent will dictate market moves. A shallow decline may not have an adverse reaction given that several large institutions have already pared back their estimates since the ADP release. However, a sharp decline will dent risk-appetite, and may exert further downward pressure on the USD. This may also be a net negative for equities, which have already been under pressure this week, whereas WTI and Brent crude futures may also decline on concerns over the economic recovery for worlds biggest consumer.