The CSI 300 plumbed over 5% lower, and the renewed fear was apparently triggered by the investigation into Chinese securities firms for alleged rule violations.
Compounding the fear factor was news that key executives from large domestic brokerages were reported missing, seemingly being hauled up for investigations. The Chairman and CEO of Guotai Junan International, Yim Fung was uncontactable since 18 November, Bloomberg reported, and the company share price plunged 12% last Monday, and subsequently ended 19.1% lower on the week.
European and US shares were also fairly weak, with very low volume in the US session, the lowest in the year. With little to none impetus over the weekend which might set off a rebound, we should see a tepid start in Asia. Stock future markets in Asia were lower, as well as the ASX 200 and Nikkei 225 that began Monday under some pressure.
As we head into the first week of December, there are quite a number of events which may fan market volatility:
- Today, the IMF will decide if the CNY will be included in its Special Drawing Rights (SDR). It looks like a done deal, with US seemingly backing the move, along with IMF chief Christine Lagarde. The follow-up question once IMF gives the OK will be whether we will see more yuan devaluation or will we see a surge in demand for the yuan given its reserve status. I reckon that an immediate rush for CNY from reserve managers and major funds is unlikely because the yuan won’t be added to the SDR basket until Sep 2016. A significant increase in the longer term is however more possible. In the shorter-term, yuan devaluation might be possible, but significant slide depends on how far the regional peers depreciate against the USD
- Chinese PMIs are due on Tuesday, 1 December. After the Minxin PMI, the official as well as the Caixin readings will shed a more complete picture of China’s industrial sector, since Minxin focused more on the Small and Medium Enterprises (7000 companies where 70% are smaller firms), while the official PMI surveys the larger manufacturers, including the state-owned enterprises. Caixin is somewhere in between.
- We also have a number of central bank meetings, starting with the Reserve Bank of Australia (RBA), and Reserve Bank of India (RBI) on Tuesday, followed by Bank of Canada (BoC), and the European Central Bank (ECB) on Wednesday and Thursday respectively. Apart from ECB, the other three central banks are expected to hold monetary policy unchanged. Economists anticipate a 10 basis point cut to ECB’s deposit facility rate to -0.30%. There are also expectations of an expansion of its QE programme, given that the recovery in the Eurozone area is found wanting, and inflation remains elusive.
- Quite a number of Fed speakers is scheduled on the speaking circuit this week, with Chair-person Janet Yellen herself, giving a testimony about the economic outlook to the Congressional committee. The USD index remained above the 100 mark after cracking the barrier last Friday. More signals that the Fed will raise rates should keep the greenback supported. Meanwhile, the November non-farm payrolls reading will also be closely monitored. A low number may see traders unwinding some of the consensus trade, given the aggressive positioning.
- The OPEC is meeting this Friday, 4 December, to set the collective quota. Although the Saudis talked about the possibility of an agreement to cut production to stabilise prices, the other OPEC countries do not seem to be on the same page. Iran does not expect any major changes to the current production level. So it looks like it may be status quo this Friday, which means a meaningful recovery in crude prices need to come from the demand side.
The Singapore stock markets is expected to remain under pressure for longer, given the market outlook for this week. The STI fell -2% last week, marking the third consecutive weekly losses. The index is likely to pare some of October’s +7.4% gains in November. In other news, Jumbo Group reported a net profit of S$13.3 million for FY2015. Olam international plans to set up poultry and fish feed mills in Nigeria, according to Bloomberg.
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