CHINA SUSPENDS STOCK MARKET CIRCUIT-BREAKER

China suspends stock market circuit-breaker Effective from today, China will suspend its stock market circuit-breaker mechanism, after it was activated twice this week. The circuit-breakers, introduced at the start of the year, were designed to ‘protect investors and reduce volatility’ according to Chinese regulators. Yet, many argue that this had the opposite effects instead. The 7% breaker had a ‘magnet effect’ where as prices fell towards that level, investors tried to sell and get out before the break, which accelerated the decline even further. The market reacted positively on the news, with the Shanghai Composite up approximately 3% in early trading today. In an attempt to calm the FX markets, the PBoC fixed the yuan’s daily midpoint rate at a higher level. Following the fixing, both AUD and NZD surged. However, we would be cautious for any further upside moves, due to the overall uncertain environment.

• Today’s highlights: The main event of the day will be the US employment report for December. The current market forecast is for an increase in payrolls of 200k, down from 211k in November. Moreover, the unemployment rate is forecast to have remained unchanged at 5.0%, while average hourly earnings are expected to grow at the same pace as in November. Although an unreliable predictor of the NFP number, the ADP report released on Wednesday exceeded expectations by a remarkable 65k, which increases the probability of a positive surprise in the NFP figure as well. Additionally, in the minutes of the December FOMC meeting, all members judged that employment could improve further this year. As a result, another solid employment report will be in line with Fed officials’ view and could encourage USD-bulls to add to their positions.

• Elsewhere, Sweden and Norway release their industrial production data for November. Sweden’s industrial production is expected to have rebounded after a fall in October, but to have entered the positive territory only marginally. However, given that the Swedish manufacturing PMI exceeded expectations in the same month, we see a strong possibility for the industrial production to follow suit, something that could strengthen SEK somewhat. As for Norway’s industrial production, the forecast is for the figure to have fallen, albeit at a slower pace than previously. Nevertheless, since the Norwegian manufacturing PMI missed expectations and more importantly remained below the 50-line that indicates contraction for the 8th consecutive month, we see a high possibility for this figure to miss expectations as well. This could put NOK under renewed selling pressure, at least at the release.

• The UK’s trade deficit is forecast to have narrowed in November, though this is usually not a major market mover.

• From Canada, the unemployment rate for December is expected to have remained unchanged at 7.1%, following an unexpected increase in November. This was mainly because temporary government hiring for the October federal elections was reversed. In their December monetary policy statement, the Bank of Canada described the labour market as resilient. However, with falling oil prices, we could see the decline in revenues and investment in the country’s energy sector to start weighing on employment, at least in oil-intensive regions. The country’s building permits for November are also coming out.

• We have two speakers from the US scheduled on Friday’s agenda: San Francisco Fed President John Williams and Richmond Fed President Jeffrey Lacker speak.