Red Knight to Buy US and Europe

Anyone disappointed in how the Euro summit concluded, giving us a rather underwhelming result, must have taken heart in China’s fund announcement. Is the ‘Red Knight’ coming to global Capital Markets rescue again? China is planning to create two investment funds focused on the US and Europe respectively, for a total +$300b. Their aim is to boost returns on its foreign exchange reserves. The “vehicle” is to operate two funds and supposedly make more aggressive investments to produce higher returns. China is trying not to put all its eggs in one basket it seems.

Below are some other highlights of the week:

ASIA

• NZD: ANZ job ads were flat month-on-month in November, after four consecutive monthly drops. The ANZ performance of services index dropped to 47.7 last month (the lowest level in six-months).
• CNY: China’s HSBC services PMI dropped to 52.5 in November from 54.1 in October (lowest level in three-months).
• PHP: Philippines’ central bank governor offered a few dovish remarks, suggesting future interest rate or reserve requirement cuts.
• INR: Analysts noted that recent delivered public remarks from RBI Deputy Governor Gokarn sounded like a threat to tighten the capital control regime.
• AUD: It was Central Bank rate decision week and the Aussies kicked off with an expected-25bp ease (+4.25%). It’s their second consecutive cut, and issued a relatively dovish statement. Interestingly thought, the statement gave no indication of whether the RBA thinks that monetary policy is now appropriate. In contrast, the statement seemed to focus on external risk and downplayed inflation concerns. That message seems to be the same being expressed from other emerging countries who are also considering adjusting their rates.
• KRW: Korea Q3 GDP revised up to +0.8%, q/q, from +0.7%. Korea’s Finance Minister indicated that the government needs to prepare for a “period of prolonged weak growth”.
• PHP: Philippine November inflation of +4.8%, y/y, was less than expected. Core-inflation slowed to +3.7%, y/y, from +3.9% in October. Dovish comments from policy makers suggest an increase in the chance that the BSP (Central Bank) will cut rates in the next few-months.
• AUD: Australia’s Q3 GDP grew +1.0%, q/q, vs. expectations of a +0.8% rise, and growth in Q2 was revised up to +1.4% from a +1.2% estimate. Support came from fixed investment growth and robust household consumption (+0.7%). Market expects the RBA to focus on how credit stress in Europe evolves over the next couple of months for its February rate decision.
• SGD: The Singapore government announced new measures to control residential property prices. Foreign and corporate buyers will have to pay an additional +10% stamp duty on the value of the sale price on top of the standard duties.
• AUD: Employment fell -6.3k last month vs. expectations for a +10k rise. Some of this was offset by prior month employment being revised up +6.7k. The market has been focusing on the -39.9k fall in fulltime employment (the worst outturn in seven-months). Aggregate hours worked and the participation rate also fell.
• NZD: RBNZ kept its policy rate unchanged at +2.5%, as expected. Governor Bollard stressed the “unusual degree of uncertainty around global conditions”, similar to his October decision. However, they have dropped their tightening bias.
• IDR: BI kept its policy rate unchanged and in line with the consensus expectation. The tone of Bank Indonesia’s statement was dovish, but policy makers seem to be concerned that too rapid a pace of rate cuts might generate FX outflows that weaken the IDR.
• MYR: IP was stronger than expected, up +2.8%, y/y in October.
• CNY: The PBoC plans to create a +$300b investment vehicle, aimed at investments in the US and Europe in an effort to boost returns on foreign exchange reserves.
• CNY: Their inflation was softer with growth data mixed. Headline inflation fell more than expected to +4.2%, y/y, in November from +5.5% in October (lowest level in 12-months). The PPI also declined sharply to +2.7% from +5.0%. The results support the cut in banks’ required reserve ratios.
• CNY: On the growth front, data are mixed, with IP moderating to +12.4%, y/y, but retail sales activity held up well at +17.3% in November. This would suggest a continued neutral monetary policy stance, “with fine-tuning in the policy mix”.

AMERICAS Week in FX
EUROPE Week in FX