Softening European PMIs in focus

Market movers today

• Today, we get flash December PMIs for the US and euro area . In particular, we will monitor the European ones, as euro area growth has disappointed this year and in November, the euro area PMI composite fell to a four-year low. We look for another small decline in the PMI manufacturing to 51.3 in line with the still negative order-inventory balance but we still see scope for a stabilisation in PMI services at 53.5.

• In the US , retail sales in November are due out at 14:30 CET. We expect private consumption to remain the most important growth driver going forward.

• EU27 new car registrations for November are due out at 08:00 CET. Usually this is not a market mover, but production bottlenecks in the car sector due to new emission test standards have led to a sharp contraction in German GDP growth in Q3. After a significant drop in September, registrations have recovered some ground, but it will be interesting to see whether this continued in November. A weak print could well point to lingering growth headwinds from the car sector in Q4.

• We expect the Russian central bank to hike the policy rate 25bp to 7.75% today at 12.30 CET. Economists are divided on a hike with some 60% expecting an unchanged policy rate. While we expect a hike, it is a close call and we do not have any clear signals.

Selected market news

Equity markets in Asia fell and US equity futures were in the red due to sour sentiment arising in global markets as China 's weak retail sales and industrial production data signalled a continuing slowdown in the Chinese economy. Both the CNY and the AUD slid, while the JPY and US Treasuries climbed higher. While the Bank of Japan 's (BoJ) Tankan Large Manufacturing Index for Q4 18 stayed unchanged at 19, it fell to 15 for the next period. The BoJ trimmed the purchasing of bonds maturing in 5-10 years, which was the first cut in the range since June 2018.

Yesterday, the ECB formally announced an end to the asset purchase programme by the end of the year. The decision was widely expected, but we find great interest in the fact that the ECB now ties the reinvestment period up to the first rate hike, and that the notion of the next step is a hike from the ECB, which would be a hawkish signal. Draghi said that markets had understood the forward guidance on rates. That comment was somewhat surprising to us as markets currently only point to a 20bp hike in June 2020. Markets generally traded within a narrow band, and yesterday's meeting does not alter our expectation of the ECB hiking rates in December 2019.

Yesterday, there was a big fall in the US initial jobless claims from 233,000 to 206,000. The previous rise in initial jobless claims was a concern to some, so the recent print should calm down some of the near-term slowdown risks. Markets are also still trading on recession risks further out.

Download The Full Daily FX Market Commentary