- Chinese PMI increased for the third month in a row.
- Asian stock markets higher this morning.
- Euro area PMIs in focus today.
The flash estimate for China HSBC manufacturing PMI in November improved to 50.4 (DB: 50.2) from a final reading of 49.5 in October. This is the third month in a row with an improvement in HSBC manufacturing and it is now at its highest level since October last year. The details were mixed with new orders declining from 51.2 to 50.2, while export orders improved markedly from 46.7 to 52.4 and in line with the recent foreign trade data suggest surprisingly resilient exports.
The continued improvement in the manufacturing PMI is consistent with our view that the Chinese economy has bottomed out and has started to recover moderately. Policy-wise the implication is that we are unlikely to see further substantial monetary and fiscal easing albeit we cannot completely rule out a cut in the reserve requirement for commercial banks at some stage next year.
In the US, White House and Republican House staff are working on the outlay for a deal on the fiscal cliff. However, the work seems to be progressing slowly. So far, aides say, there has been no effort to settle the most important elements of any budget deal's framework: the target numbers for revenue increases and spending cuts.
The increase in the Chinese PMI has given a boost to Asian stock markets this morning. In addition, the weak yen continues to support Japanese equities and the Nikkei index jumped 1.2% to a six-month high. Risk sentiment is also supported by the agreement between Israel and Hamas on a cease fire after negotiations brokered by Egypt and the US.
US bond yields ended the day slightly higher in a thin trading session ahead of the Thanksgiving holiday. In European markets, peripheral spreads managed to tighten despite the failure of the Eurogroup to reach an agreement on Greece.
In FX markets, the uptrend in EUR/USD has continued overnight. SEK and NOK have been stable against EUR. In commodity markets the improvement in Chinese manufacturing activity has sent oil prices higher.
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