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IronFX Daily Commentary | China to keep share sales ban in effect | 06/01/2016

06.01.2016, 11am

• China to keep share sales ban in effect China's securities regulator said that it was studying new rules to restrict share sales by listed companies' major shareholders to ensure an orderly exit. The news that the ban will remain in effect until the government publishes new rules, stabilized the Chinese stock markets, with Shanghai Composite up around 1% in early European trading. Even though this development could roll into the European markets and ease a bit the fall seen in the last few days, I don’t believe it will be enough to stop the bears from pushing the stock markets even lower.

• In the US, the main event will be the Fed’s December 15-16 FOMC meeting minutes, where the committee decided unanimously to raise interest rates by 25bps for the first time in almost a decade. Well before the meeting, Fed Governors Tarullo and Brainard said that the Fed should hold off on rate hikes, comments that showed divisions within the FOMC. Therefore, it will be interesting to see in the minutes how come the members voted unanimously to lift rates. Of particular note will be any hints on what other factors, besides domestic data, might affect the pace of the tightening cycle. Fed members’ have repeatedly emphasized that they will take a gradual approach on the future rate path. As a result, in the minutes they may retain their data-dependence going forward to avoid an undue market turmoil. An overall upbeat tone in the minutes is likely to support the greenback further.

• Today’s highlights: During the European day, we get the final service-sector PMIs for December from the countries we got the manufacturing data on Monday. The final forecasts for France, Germany and Eurozone are the same as the initial estimates, so no major reaction is expected. Eurozone’s PPI for December is coming out as well.

• The UK service-sector PMI for December is forecast to have fallen somewhat. Bearing in mind the mixed results of the manufacturing and construction PMIs for the same month, the services index could provide more evidence on whether the economy has lost momentum in Q4, especially as services account for the vast majority of UK’s GDP. This could ease some of the downward pressure on GBP.

• As for indicators, we get the ADP employment report for December, two days ahead of the NFP release. The ADP report is expected to show that the private sector gained 192k jobs, fewer than it did in the previous month where the print hit 217k. Though still pretty close to the 200k mark. Although an unreliable predictor of the NFP number, this could increase speculation that the NFP print on Friday may also come near 200k. Indeed, expectations for the NFP figure are currently at 200k. The ISM non-manufacturing PMI and the final Markit service-sector PMI, both for December, are coming out. There is no forecast available for the Markit index, but in any case the market generally pays more attention to the ISM figure, which is expected to have fallen. Following a disappointing print in the ISM manufacturing index for the same month, another decline in the non-manufacturing index could poise the dollar to reverse some of its recent gains. The US trade balance for November, as well as the factory orders for the same month are also due to be released.

• In Canada, the trade deficit is expected to have narrowed in November, but only slightly.

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