GLOBAL MARKETS: A quiet session overnight, with the US market closed for Thanksgiving. Further signs of recovery in the Chinese manufacturing sector underpinned optimism, with European and UK equities up 0.6% and 0.7% respectively. Core global bond yields continued their slow grind higher, while Eurozone peripheral yields edged lower. Greek Government bond yields (16.06% for the 10-year maturity) fell to their lowest since March amid optimism European policymakers would take steps to address the Greek fiscal crisis. Commodity prices firmed slightly overnight led by industrials and energy (with oil prices down slightly following the announcement of a truce between Hamas and Israel ), offsetting rises for soft commodities.
GLOBAL DIVERGENCES SET TO WIDEN: Markets were buoyed by signs activity is picking in the Chinese economy, with the rebound in the November Markit Flash manufacturing PMI to a 13-month high of 50.4, the latest in a string of positive Chinese data releases. Stronger growth would no doubt help smooth the once-in-a-decade Chinese leadership transition and reduce the likelihood of additional policy stimulus. Green shoots have also emerged in the US , notwithstanding issues over the fiscal cliff. However, this is underscoring divergences in the global economy, with overnight data for the Eurozone suggesting their recession is likely to deepen by the end of the year, with services and manufacturing output shrinking for a 10th consecutive month in November. A stronger China is good news for the Eurozone export sector, but with the Chinese economy moving towards a more consumption-centric growth model (rather than the investment-led model which is more linked to the Eurozone export sector) this time around Europe may not be able to bank on the Chinese recovery to lift its economy out of the mire.
· Sparring over EU’s 7-year Budget Continues: UK PM Cameron: “It is quite wrong for there to be proposals for this increased extra spending in the EU. So we are going to be negotiating very hard for a good deal for Britain ’s taxpayers”. Italian PM Monti:“It’s absolutely necessary that Italy obtain better results than those we have today, better than those laid out in the draft under negotiation.” French PM Hollande: Farm support “isn’t a French policy, it’s a European policy,” German Chancellor Merkel: “We may need a second step and we’ll be able to better judge that tomorrow. In times of budget consolidation in all of Europe , we here have to see to it that spending isn’t too high.”
NZD/USD: US and China expanding: Yesterday’s HSBC flash PMI moved into expansionary territory. Now both the US and Chinese early indicators are telling us that these economies are expanding. The NZD tends to do well on good global data, and this should keep it in demand and well supported on dips. Expected range: 0.8130 – 0.8180