As I wrote last week, the markets are going to be in a drunken stupor with various central bank activity in December, so a little China wine in the coming week should add some colour. Nonetheless, it is unlikely to mask the influence of central bank on financial markets.
That said, apart from the monetary policy divergence theme, it is only fitting for markets to give some attention to Chinese data as the China slowdown remains one of the key narratives next year.
Therefore, data releases out from China will be monitored for signs of further growth weakness or stabilisation. China’s trade data for November is first on the data docket. The consensus expects improvement in the exports and imports readings, although they will still be firmly in the contractionary zone.
One also wonders whether the weaker yuan has influenced Chinese trade volume. There is also lingering concerns whether the over/under-invoicing issue continue to distort the numbers.
Inflation figures are also due next week, where the trend is hardly going to change. Consumer Price Index (CPI) is expected to continue growing albeit at a subdued pace, while growth in the Producer Price Index (PPI) will remain negative, primarily due to persistent declines in commodity prices.
China might also release aggregate financing data and monetary aggregate numbers next week (anytime within 10-15 December), where the growth in new yuan loans will be closely watched.
Speculations of more government stimulus after weak PMI numbers have driven up Chinese equities this week. I still don’t see much room for upsides in the short term, as corporate profits remain weak against the backdrop of slowing growth. But it won’t stop market participants from pushing up prices on hopes that Beijing is going to shore up growth with new stimulus.
Meanwhile, Caixin reported that the circuit breakers for Chinese stock markets will be implemented after the New Year starts on 1 January. Previously, the proposal announced in September calls for a 30-minute suspension if there is a 5% rise or fall in the CSI 300.
However, Caixin claimed that the suspension time has been shortened. Under the current rules, individual shares are subjected to a daily trading limit of 10% in either direction. Nonetheless, this contributes to broader efforts to strengthen the efficient functioning of domestic equity markets.
Economists have prompted revising their final Q3 GDP estimates after Japan’s capital spending surpassed expectations to grow at the fastest pace in eight years at 11.2% YoY versus 2.2% expected. In addition, the expansion was led by strong gains in both manufacturing and non-manufacturing companies, which bode well for business sentiments.
The consensus estimate is now for a +0.1% QoQ seasonally adjusted growth in Q3 from the preliminary reading of -0.2%. On an annualised basis, Q3 GDP should register a small positive growth at +0.2% against -0.8% initially estimated.
More central banks
The Bank of England (BoE), the Reserve Bank of New Zealand (RBNZ), and Bank of Korea (BoK) are having their policy meetings on the same day on 10 December. However, only RBNZ is expected to cut its official cash rate by 25 basis point to 2.5%.
It is clear that the RBNZ prefers to keep the kiwi weak. However if the main trigger is a lower kiwi, then the weaker currency (-1.4% since the last RBNZ meeting) should suggest another rate pause. Furthermore, there is significant upward price pressures in the housing markets, including Auckland. BoE and BoK are likely to leave monetary policy unchanged.
Reaction to non-farm payrolls is key
We will see a market reaction in tonight’s non-farm payroll data should there be an upside or downside surprise. But from a policy perspective, I find it hard that even a weak number (somewhere south of 150,000) will derail the Fed’s inclination towards a December rate hike. It has become increasingly a credibility issue for the Federal Reserve.
This won’t stop the markets from speculating on the probability if a weak NFP materialise, which is worsen by the Fed’s media blackout from Tuesday onwards. The coming week will bring US retail sales and the Michigan sentiment survey into view, which would give more glimpse to the strength of the US consumption. Expectations are for a quicker growth pace in retail sales in November ahead of Christmas.
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