Good morning,

- At its meeting today, RBA decided to leave the cash rate unchanged at 2.0 per cent. Governor of RBA stated that “The global economy is expanding at a moderate pace, with some softening in conditions in the Asian region, continuing US growth and a recovery in Europe. Key commodity prices are much lower than a year ago, reflecting increased supply, including from Australia, as well as weaker demand. Australia's terms of trade are falling. The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease monetary policy. Volatility in financial markets has abated somewhat for the moment. While credit costs for some emerging market countries remain higher than a year ago, global financial conditions overall remain very accommodative.”

- Fears that China’s monetary easing and fiscal spending have not done enough to prop up the economy have only increased in the wake of today’s PMI release. China’s manufacturing PMIs both stayed heavily in contractionary territory despite the NBS PMI declining and the Caixin PMI increasing. It does seem quite noteworthy that the NBS PMI, associated with bigger state-owned corporates, dropped to its lowest level since August 2012. There was little to cheer from the breakdown in its components either. In the two key sub-components, Output slowed from the previous month and New Orders returned to contractionary sub-50 territory.

- FTSE 100 looks for a breakout. The levels from yesterday's update are still valid.

- BoE: Markets vulnerable to sharp increase in interest rates or fall in risk appetite. Counter-cyclical buffer kept at 0.0%.

- $NZD was the best performing major vs $USD on Monday with +0.78% spot-returns while $EUR was the worst performing with -0.26% returns.

- $EUR, $CHF, and $NZD are expected to be the most active majors vs $USD with 1W implied volatility at 16.14, 14.73, and 12.47 respectively.

- Global Bonds (10Y, Govt): Japan 0.290%; Germany 0.469%; France 0.796%; Canada 1.559%; UK 1.839%; US 2.207%; Australia 2.819%.

- NZD/USD Steady despite NZ Terms of Trade Falling Most in 7 Years. The -3.7% drop in New Zealand's 3Q Terms of Trade is the fourth largest in 20 years. Not good for an export-heavy economy like NZ....let's see if this adds to the evidence for the RBNZ to consider further easing in policy in an indirect effort to devalue NZD

- The addition of China's yuan to the select basket of currencies used as a yardstick by the International Monetary Fund is a sign, experts say, that the yuan may one day become as recognizable as the dollar or euro. Adding the yuan alongside the dollar, euro, pound and yen is a symbolic victory for Beijing. It reflects the rising importance of the world's second-largest economy and is an endorsement of gradual Chinese moves toward making the currency freely traded. Currency traders and economists see the change as encouragement to Beijing to make faster progress on promises to make the yuan "freely tradable" and open its financial system. China is the second-biggest economy after the United States and the biggest trader. The yuan is the No. 4 currency for global trade, accounting for about 2.5 percent of the total, according to SWIFT, the organization for interbank financial transfers. Beijing controls the flow of money into and out of its economy but has encouraged the use of the yuan abroad, especially for trade, which helps Chinese exporters by eliminating the cost and risk of volatile exchange rates

- Swiss Franc Looks Past Soft 3Q GDP Data as ECB Looms Large.

- A pick-up in growth was recorded in the Spanish manufacturing sector during November, with output and new orders both increasing at faster rates. This encouraged greater purchasing activity and a buildup of inventories. Meanwhile, falling raw material costs continued to lead to reductions in both input prices and output charges. The seasonally adjusted Markit Spain Purchasing Managers’ Index® (PMI® ) – a composite indicator designed to measure the performance of the manufacturing economy – rose to 53.1 in November from 51.3 in October, thereby signaling a solid and stronger improvement in the health of the sector.

- Swiss economic growth unexpectedly slowed in the third quarter, with momentum held back by weak performance in the energy, construction and financial sector. Output was unchanged in the three months through September, after increasing of 0.2 percent in the prior period, the State Secretariat for Economic Affairs in Bern said on Tuesday. Economists in a Bloomberg survey had forecast a growth rate of 0.2 percent in the third quarter. The first-quarter growth rate was revised down to minus 0.3 percent from minus 0.2 percent. “We’re currently in a trough, you see that in the trade figures: there’s still some digesting of the franc shock that needs to be done,” said Cornelia Luchsinger, an economist at Zuercher Kantonalbank. “But for the next year we clearly see a recovery.”

- The U.S. Federal Reserve and European Central Bank are expected to deliver sharply contrasting policy decisions next month, reflecting how the world's two largest economies have moved from the Great Recession to the Great Divide. The U.S. and euro zone central banks have been on a similar path of monetary easing since the financial and economic crisis of 2007-09. But the Fed is now poised for "liftoff", delivering its first rise in interest rates for almost a decade, while the ECB is expected to flood the market with more deflation-busting stimulus. These expectations are clearly shown in financial markets. and short-term U.S. bond yields have soared, while the euro and short-term euro zone bond yields have plunged. The gap between benchmark two-year U.S. and euro zone yields is its widest since 2006 - the two-year German yield is -0.42 percent while the U.S. yield is just under 1 percent - and the dollar's value against a basket of currencies is within a whisker of a peak not seen since 2003. The euro is on track for its biggest annual loss since the year of its launch in 1999. It is down 8.5 percent on a trade-weighted basis so far in 2015 and many analysts expect it to crash through parity with the dollar next year. Analysts at Goldman Sachs predict a new low of $0.80 in 2017.

- Tom Hayes, the former UBS Group AG trader given a 14 year-prison term for manipulating Libor, returns to court this week to try to persuade the U.K.’s top judge to overturn one of the longest sentences ever issued in Britain for a white-collar crime. The 36-year-old Hayes’s appeal will take place at a two-day hearing starting Tuesday in London. While Hayes is challenging both the August conviction and sentence, the prison term might get more attention from the court. "The length of Hayes’s sentence was a surprise to many in the financial-services industry," said Amanda Pinto, a London trial lawyer at 33 Chancery Lane, who specializes in financial crime. "In the past, custodial sentences for white collar crimes have been much shorter. It’s really important for confidence in London as a global financial center that this appeal is resolved quickly." Hayes, who was given the nickname "Rain Man" by colleagues, traded interest-rate derivatives for UBS in Tokyo where, between 2006 and 2009, he earned the bank $300 million. He was then hired by Citigroup Inc. with a $3 million signing bonus, but was fired less than a year later after managers accused him of trying to rig Libor.

- Major news for today: US ISM Manufacturing Index, US Motor Vehicle Sales, BOE Gov Carney Speaks, CAD GDP, AUD Gov. Stevens speaks.

Have a great day!

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