Mixed day likely for Asia

Market sentiment in the overnight session was mixed, with the European indices ending higher while the US equities were lower. That was a result of some trepidation ahead of a week packed with risk events.

US Trader
Source: Bloomberg

The S&P500 dropped 0.5% while the DAX rallied 0.8%. The dollar index held on to the 100 barrier, making gains against the euro and yen. Despite the varied performance, Japan and Australia markets started on a positive note.

For Japan, a weaker yen and better-than-expected capital spending data may have lifted the local stocks. The Nikkei rallied near to the psychological 20,000 level once again, and may be able to break it should risk appetite pick up in Asia today.

China PMIs and RBA meeting are key events to watch in Asia today, and may provide trading clues. As of writing, China’s official PMI disappointed consensus, deteriorating to 49.6 in November from the previous reading of 49.8. The non-manufacturing PMI however, improved to 53.6 from 53.1, which reinforced the view that services are cushioning growth. The private sector Caixin PMI was bettern than expected at 48.6 but still below key 50 level.


IMF adds Yuan in SDR

The IMF decided that the yuan meets the standard of being ‘freely usable’ and will add it to its Special Drawing Rights (SDR) from 1 October 2016, which acknowledges the strides that China has made to become a global power. The last time the SDR basket was changed was in 1999 where the euro replaced the deutsche mark and French franc.

IMF managing director Lagarde said, “The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented and is a clear, stronger representation of the global economy.

Under the new SDR composition, the USD continues to be the dominant reserve currency with a weighting of 41.73%, followed by the euro at 30.93%. Yuan or CNY is third at 10.93%, and JPY and GBP bring up the rest at 8.33% and 8.09% respectively. The CNY weighting is smaller than the estimate from the IMF staff report, which put in a weight of 14-16%.

Nonetheless, the inclusion is unlikely to have great impact on short-term demand for the CNY, especially when the addition will only take effect next October. What’s more important is perhaps the boost to President Xi’s efforts to liberalise China’s financial markets. The approval seemed to have little impact on CNY, as 1-year USD/CNY non-delivery forwards traded steady within 6.6200-6.6300. The PBOC also sets the mid-point (6.3973) at quite close to the previous day (6.3962).


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