Equities across the Asia-Pacific region are mostly trading higher this morning in response to optimism of a further reopening of China’s economy from Covid restrictions. Yesterday, Shanghai joined other major Chinese cities in scrapping PCR testing requirements to enter outdoor public venues – in a sign that the authorities were driving a gradual shift away from the strict zero-Covid policy that has been in place, and which had led to a number of public protests. The ongoing impact of the lockdown measures on service sector activity in China were shown by a third straight fall in the Caixin services PMI in November, which dropped from 48.4 in October to 46.7 in the latest reading.
The coming week’s data calendar is again relatively light in terms of big hitters as markets square up to monetary policy updates in the following week from the Fed (14 Dec), the ECB (15 Dec) and the BoE (15 Dec). With the pre-meeting quiet or blackout period in place, there are no scheduled Fed or BoE speakers, and the few ECB speakers are expected to refrain from commenting on monetary policy decisions. Nevertheless, a number of survey indicators will provide additional insight into current economic trends.
In the UK today, the final November services PMI is expected to confirm the preliminary ‘flash’ report showing a second consecutive month of contraction at 48.0. Taken together with the manufacturing report, the survey is signalling a negative outturn for Q4 GDP growth, which would be a second consecutive quarterly contraction. Similarly, the final November Eurozone services PMI is forecast to confirm the ‘flash’ estimate of 48.6, consistent with contraction for a fourth straight month, and the likelihood of a negative outturn for Q4 GDP growth.
In the US, we forecast the ISM services to have declined to 53.0 (from 54.4) in November which would still signal expansion albeit at a slower pace. The alternative PMI-based measure of US services activity has been below the 50 level for the past five months. Notably, the latter excludes the public sector, construction, mining, utilities and wholesale and retail trade.
Overnight, the BRC will release its latest ‘unofficial’ UK retail sales figures for November which will provide an indication of consumer outlays (unadjusted for inflation) at the start of the festive shopping period. Elsewhere, despite the recent soft Australia October inflation outturn, the Reserve Bank of Australia is predicted to hike by another 25bp to 3.10%.
Hopes of a further reopening of the Chinese economy has boosted market risk sentiment. Notably, the US dollar has fallen against most of its major peers and in most cases reversed the moves seen after last Friday’s strong US payrolls report. GBP/USD has moved back above 1.23, while the euro has edged above 1.0550 and to its highest level versus the dollar since late June.
