Hello everyone and welcome to this week’s edition of macro corner brought to you by GKFX.
Chinese PMI hits three year low
First off we start with China where Manufacturing activity hit a three-year low last month. China's National Bureau of Statistics' official Purchasing Managers' Index (PMI) hit 49.6 in November. The data which was released today (Tuesday) was the lowest reading of the index since August 2012 and was 0.2 lower than October’s figure. This is now the fourth consecutive month of contraction in the manufacturing sector where a reading below 50 points suggests a decline in activity on a monthly basis while a reading above signifies an expansion.
Commenting on the data, ANZ economists Li-Gang Liu and Louis Lam, said: and here we quote: "With soft growth momentum and deflation pressures creeping up, we expect the authorities to further ease monetary policy and continue to implement an expansionary fiscal policy in order to prevent further slowdown of the economy in 2016." and here we end the quote.
澳新银行(ANZ)的经济学家刘利刚(Li-Gang Liu)和路易斯•兰姆(Louis Lam）认为，“由于增长势头温和，通缩压力又慢慢逼近，我们希望当局进一步放松货币政策，继续实施扩张性的财政政策，以防止2016年经济进一步下滑。”
Separately, we saw the Caixin/Market China Manufacturing PMI edge up to 48.6 in November, beating market expectations of 48.3. This index has shown contraction now for nine straight months.
As we have noted though in past reports, the private sector Caixin survey focuses more on small-to-medium-sized private firms. These firms are showing more stress from the prolonged economic slowdown and high financing costs whereas the official PMI looks more at the larger, state-owned firms.
The official PMI's sub-indexes though showed widespread weakness in manufacturing with new orders - a proxy for domestic and foreign demand - down 0.5 points to 49.8. and with Exports contracting to 46.4 for the 14th straight month. Input prices declined 3.3 points to 41.1.
ANZ economists said all this points to persistent deflation in upstream prices and this will add pressure to factory gate prices and industrial profits.
Service sector activity though has helped offset the wider effects of weakness in manufacturing. The sector reading improved again with the official non-manufacturing PMI up half an index point to 53.6. Remember too that the services sector is the biggest contributor to China's GDP.
However despite a long series of stimulus measures, including cutting interest rates six times since November last year, this muted monthly data for October suggests that China's economic momentum continues to slow.
Some analysts expect China's economy will bottom out in the fourth quarter as a burst of stimulus measures rolled out by Beijing gradually takes effect. But many equally remain wary about the outlook.
China's Premier Li Keqiang said last week that China was on track to reach its economic growth target of about 7 percent this year. He also stressed that the economy was going through adjustments to maintain reasonable medium- to long-term growth.
But that would still mark China's weakest economic expansion in a quarter of a century. And some analysts believe real growth levels are much weaker than official data would suggest.
Yesterday as predicted the IMF added the Chinese Yuan to its Special Drawing Rights basket yesterday, but what does that mean for the currency?
1) Effective Oct. 1, 2016, the renminbi will officially be recognized as a reserve currency, meaning central banks will have an alternative for foreign exchange reserves.
2) The basket's currency weighting will get mixed up, with the euro seeing the biggest percentage drop from the new formula.
3) The yuan also meets criteria of being "freely usable," or widely used for international payments and in foreign exchange markets, boosting China's influence in the global economy.
The yuan will have 10.92% weighting. The U.S. dollar's weighting will fall to 41.73% from 41.9%, the euro's weighting drops all the way to 30.93% from 37.4%, the pound to 8.09% from 11.3%, and the yen to 8.33% from 9.4%.
Euro zone November factory growth at 19-month high but still weak
Turning now to the Euro Zone
Manufacturing growth picked up to a 19-month high in November, data released on Tuesday (today) showed. But, the pace of growth is still relatively modest, adding further pressure for the European Central Bank to ease policy again.
That came despite firms cutting prices for a third month and as a weaker euro boosted exports. Markit's final manufacturing Purchasing Managers' Index rose to 52.8 in November from October's 52.3. The index has now held above the 50 mark that separates growth from contraction for well over two years.
尽管企业已经持续3个月降价，欧元贬值促进了出口，但结果依然如此。11月Markit PMI终值从10月份的52.3 上升到了52.8 。这一指数现在处于50以上，把过去两年多里的增长和紧缩分隔开来。
As part of its battle to stimulate growth and inflation to its target of 2% the ECB has been pumping 60 billion euros a month of new money into the economy since March. Inflation in October was a miniscule 0.1%.
But the market expects the ECB to expand and extend its quantitative easing programme when policymakers meet on Thursday. It should also cut its deposit rate further into negative territory. This effectively increases the amount banks have to pay to park money overnight.
Chris Williamson, the chief economist at survey compiler Markit, said: and here we quote: "With growth remaining modest, prices falling and manufacturing still some 10 percent smaller than its pre-crisis peak, the scene is set for the ECB to unleash further stimulus at its December meeting to ensure momentum continues to build." and here we end the quote.
Swiss economy needs further policy action
The Swiss GDP figure release today (Tuesday) also revealed that growth stalled in Q3 and November’s manufacturing PMI points to worse to come. This raises the likelihood that the Swiss National Bank (SNB) will increase its policy support in the coming months.
The GDP outturn was worse than the consensus forecast of a 0.2% quarterly rise. But better than Capital Economics own expectation of a small contraction. Together with revisions to earlier data, it left the annual growth rate at a two-and-a-half-year low of 0.8%.
On the face of it, the breakdown was encouraging. Consumer spending rose by 0.4%. This suggests that deflation has yet to have a negative effect.
And net exports made a large positive contribution to GDP (1.8ppts) despite the strength of the Swiss franc. Exports surged by 5.4% q/q, mainly reflecting a sharp increase in the volatile valuables component. But excluding that, exports still increased by 0.6%.
However, this was at odds with earlier monthly trade data, which had pointed to a fall in export volumes of around 3% in Q3. This, together with the very large negative “statistical discrepancy” in the Q3 GDP data, might suggest that the exports estimate will be revised in future.
In any case, the reported strength of exports is very unlikely to be sustained. The appreciation of the franc’s effective exchange rate has probably yet to be seen. This occurred after the SNB abandoned its currency ceiling in January.
Other data released today showed that the Swiss manufacturing PMI fell to 49.7 in November from 50.7 in October. This put the index back in contraction territory.
Meanwhile, October’s 0.8% annual fall in Swiss retail sales was a worrying sign that the long period of negative inflation in Switzerland might be starting to cause households to put off purchases.
All in all, Capital Economics still sees the Swiss economy struggling to grow next year as currency strength takes its toll. The SNB should go on intervening in FX markets. We also see the SNB cutting its deposit rate to -1.0% at its meeting on 10th December. But this is unlikely to prevent an appreciation of the franc or eradicate the threat of deflation.
Well that’s about it for this week .traders are busily determining where the markets will go to close out the year and major events this week, include thwe crucial ECB meeting, speeches from Janet Yellen, OPEC's conference in Vienna and the November jobs report, which will likely give clues about that direction and with more than a half-dozen Fed officials also scheduled to speak over the next few days, which may provide further hints about upcoming U.S. monetary policy there is plenty of volatility opportunity to come .
So tread carefully as its not only the weather that could get wild this week .
This has been Alex Heath reporting for GKFX ,
这就是本期的Alex Health 视频报道
Goodbye , have a good weeks trading, and thanks for watching .