PMI nerves

CNY to join SDR
The International Monetary Fund will add the Chinese yuan to the basket of its arcane Special Drawing Rights (SDR) accounting unit, where it will join the US dollar, the euro, the pound and the yen. Technically, this will make the yuan a "reserve" currency. Practically, it makes little difference to its status.

SDRs are, indeed, a currency reserve but they exist solely in the accounts of the IMF and can only be withdrawn by IMF members after conversion into one of the basket currencies. Investors might be keener to hold the yuan once it joins the SDR next October but they will still be discouraged by the fact that it is still not freely convertible. Presumably the IMF believes its move will hasten that convertibility.

It could also encourage greater use of the yuan in international trade but it has a long way to go. At present it is used in only 2.5% of cross-border transactions and 70% of those take place in Hong Kong, meaning the yuan is involved in less than 1% of trade ex-Hong Kong (US dollar 43%, British pound 9%). The yuan weakened by -0.5% against the pound yesterday, not because of the IMF announcement but because its value against the dollar is tightly managed by Beijing and the dollar went down by -0.5%.

Kiwi leads
The antipodean dollars put in the best performance, with the Kiwi up by 0.8% against sterling and the Aussie by half that much. The Japanese yen shared the wooden spoon with the South African rand, not far behind the US dollar and the euro. On average, the pound was fractionally ahead.

Monday's economic statistics had minimal impact on the proceedings. Inflation was positive in Italy and Germany at 0.1% and 04% respectively. UK consumer credit and mortgage lending were only mildly disappointing. US pending home sales increased by less than expected. 

The Australian dollar strengthened slightly after the Reserve Bank of Australia kept its benchmark interest rate unchanged, having been helped earlier on by the strongest manufacturing sector purchasing managers' index in two years. Both of the antipodeans were surprisingly resilient to a mixed clutch of Chinese PMIs, one of which, at 49.6, showed manufacturing in its wobbliest position in three years.

More PMIs
As usual on the first of the month, the topic du jour will be the manufacturing sector PMIs from Europe and North America. Swiss, Canadian and Australian gross domestic product will play supporting roles, as will German unemployment and the Global Dairy Trade index.

Analysts think UK manufacturing activity will turn out to have been a little more leisurely in November, taking the PMI down from 55.5 to 54.0, with steady or accelerating growth just about everywhere else. If so, sterling might have to give back some of yesterday's gains.

Canadian GDP is forecast to have been flat in the third quarter, as it was in Switzerland. Growth of 0.7% is pencilled in for Australia in Q3.