Risk Off on Weak Data from China and Japan, SNB Awaited

Risk sentiments remain weak in Asian markets today on poor economic data. HSBC Flash China manufacturing PMI stayed in contraction region at 49 in December. Even though that's an improvement from November's 47.7, it's still suggesting further contraction in activities ahead. HSBC Chief Economist for China noted that while "pace of slowdown stabilized", "growth momentum remains weak" with downside risks from exports and property markets. He urged the government to make "more aggressive easing on both fiscal and monetary fronts". Chinese Ministry spokesman said in a press conference today that "export situation in the first quarter of next year will be very severe".

The BoJ quarterly Tankan survey showed worse than expected conditions at large manufacturers. The headline manufacturing index dropped from Q3's 2 to Q4's -4, versus expectation of -2. The data showed continuing pressure on the manufacturing sector, by strength in yen which is squeezing profits and sales. Rising risk of global recession is also dampening the exports outlook. The severe floods in Thailand also disrupted production facilities among top Japanese manufacturers. The non-manufacturing index, though, improved unexpectedly to 4.

Euro continues to stay weak against dollar, yen and sterling with EUR/USD trading below 1.3 level. Fear of downgrade is still a factor that's pressuring the common currency. Hitting out at rumors of a French downgrade, ECB Noyer said that the rating agencies argument are "more political arguments than economic ones". And, Noya noted that downgrade, if happens, "does not appear to me to be justified when considering economic fundamentals". French Foreign Minister Juppe also said that decisions by rating agency were "sometimes subjective and political."

Looking ahead, SNB announcement will be a major focus today. Swiss franc continues to hover within a narrow trading range of 1.22-1.24, amid speculations that the SNB would intervene against appreciation of the currency. Economic growth and inflation have moderated since the last meeting. Together with persistent risks of sovereign crisis in the Eurozone, policymakers would likely delivered a rather downbeat statement, warning against further deterioration in domestic and global economic prospects. More in SNB May Raise EURCHF Ceiling, Send Interest Rate To Negative.

Also, a number of important economic data will be released today, including Eurozone PMIs flash, CPI, UK retail sales, US PPI, jobless claims, empire state manufacturing, Philly fed survey and industrial production. Also, attention will be on Spain auction of EUR 3.5b of 2016, 2020, 2021 bonds today.