Today we publish our Top Trades 2016 across the FX and FI sphere

Market Movers

In the US the ISM manufacturing index for November is to be released. Regional indices for November and the ISM order-inventory balance in October indicate that the ISM should not fall below 50 and we expect a marginal increase from 50.1 to 50.3 in November. Note also that Fed’s Evans tonight will kick off a series of Fed speeches this week.
In the UK we anticipate that the manufacturing PMI declined in November from 55.5 last month to around 53. This should mainly be seen as a correction as the index made an oddly large jump from 51.8 to 55.5 in October. This level is usually associated with growth in manufacturing production of around 1.0% q/q, which seems very unlikely since the manufacturing sector is struggling due to the strong GBP and the slowdown in manufacturing globally.
Euro-area and German unemployment figures are due for release and we expect both to remain unchanged. In the euro area, low potential growth has implied that the unemployment rate has declined to the lowest level since the beginning of 2012 despite modest GDP growth. We expect the downward trend towards the structural unemployment rate to continue in 2016.
Today we publish our Top Trades 2016 across the FX and FI sphere.
Swedish and Norwegian manufacturing PMIs due. See Scandi Markets.

Selected Market News

Sentiment somewhat mixed in the Asian session after Chinese PMIs painted a twosided – and overall somewhat downbeat – picture of the Chinese economy: the official (NBS) manufacturing PMI dropped to 49.6 (last and expected: 49.8, Danske Bank: 50.1) in November while the non-manufacturing PMI rose to 53.6 (from 53.1). Separately, the Caixin PMI manufacturing fell to 48.3 (last and expected: 48.6). Thus, the slight recovery that we had been looking for is yet to materialise in the manufacturing sector. We continue to look for another 25bp PBoC rate cut before year-end and a cut in the reserve requirement ratio of 50bp.

Yesterday the IMF announced the long-awaited inclusion of CNY in the IMF’s reserve currency basket (SDR): the Chinese currency is set to enter with a 10.92% weight, ahead of the JPY and GBP. As the yuan has now got the IMF ‘stamp of approval’ global reserve managers are likely to gradually add more CNY assets. We still expect a gradual weakening of the CNY from here but no sharp devaluation as this could backfire via significant capital outflows and deterioration in global sentiment.

The Reserve Bank of Australia (RBA) this morning maintained its cash rate target unchanged at 2.00% as widely expected. The issued policy statement left little surprises and was in many aspects a copy of that released in November. We continue to look for unchanged rates from the RBA over the next 12M.

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