IMF adds yuan to reserve currency basket

Tuesday, December 01, 2015

Chinese equity markets pushed tentatively higher overnight as encouraging economic news and data supported risk appetite across the region. Following on from Monday’s announcement that the IMF would be adding the yuan to the reserve currency basket, encouraging manufacturing data saw both the Shanghai Composite and CSI 300 push modestly higher. Base metals prices traded on the LME traded tentatively higher on the encouraging outlook with copper prices pushing back above $4,600/tonne early on. Assessing that the currency was “freely usable” and permitting it to join the dollar, euro, pound and yen, the IMF said that the addition would take effect from October 1st 2016, giving the yuan a 10.92% weight in the basket.

The inclusion indicates just how extensive the reforms have been in China with offshore spot yuan trading 0.3% weaker against the USD, towards 6.4430, as market participants anticipated that the PBOC would hold off from further stimulus, allowing a freer movement of the currency. Investors were also met with encouraging manufacturing data with the Caixin manufacturing PMI reading creeping higher, coming in at 48.6 in November against expectations of 48.3. Still, there’s a long way to go yet as a reading below 50.0 signals contraction in the sector and we will look to trade data in the coming week to offer a clearer indication regarding China’s economic health.

After finally managing to close above 100.00 on Friday, the dollar index held firmly onto recent gains on Monday, trading tentatively higher towards 100.310 as investors geared up for this week’s economic data releases ahead of the FOMC meeting later this month. With non-farm payrolls, unemployment and trade balance data expected on Friday investors will use today’s release of the ISM manufacturing index and tomorrow’s ADP employment change as well as Thursday’s Challenger job cuts, durable goods orders and initial jobless claims as a primer for Friday’s releases. Expectations are for unemployment to hold at 5.0% while 200K positions are expected to be added to non-farm payrolls. Of course any positive surprises will be seen as very encouraging for a December rates rise.

Offshore yuan weakens against USD after IMF inclusion

CNH Curncy Offshore Deliverable 2015 12 01 07 47 28

Dollar index holds above 100.00

DXY Curncy DOLLAR INDEX SPOT 2015 12 01 08 05 21

Events for today

0100

CN

Nov

Manufacturing PMI

0100

CN

Nov

Non-manufacturing PMI

0145

CN

Nov

Caixin China PMI

0900

EZ

Nov

Markit Eurozone Manufacturing PMI

1000

EZ

Oct

Unemployment Rate

1500

US

Nov

ISM Manufacturing

Topics: Copper, US Fed, USD, LME, PBOC, CNH
More from: Kash Kamal