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News & Views: Tuesday, December 2

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What you need to know for today's trading day.

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This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

The World's Dumbest Idea (GMO)

Ruble Drops 6th Day as Recession Warning Compounds Crude Slump (Bloomberg)

Euro zone producer prices fall at sharpest rate in a year (Reuters)

India's Central Bank Holds Interest Rates Steady (NYTimes)

RBA Keeps Record-Low Rate to Boost GDP as Commodities Tumble (Bloomberg)

Views
The assets having the largest positive return on a risk-adjusted and absolute basis overnight are Chinese onshore equities. The Shanghai Composite rose 3.21% last night. Some of the causes for the rally included a front page article in the Shanghai Securities News from a professor in the People's Bank of China's (PBoC) academic division that rate cuts won't do the trick in promoting growth and that more things, such as reforms and new monetary tools that can increase the growth in the money supply, are needed. Separately, news reports indicated that the PBoC did not conduct normally scheduled repos last night to drain cash from the banking system, and money market rates dropped. Lastly, chatter increased that another reserve-requirement ratio cut is coming from the central bank, and coupled with calls that that alone is not enough, financials led the the rally.

UK Gilts are the worst performing fixed income asset overnight on a risk-adjusted basis, as they caught up to the late weakness in US Treasuries yesterday. The weakest construction PMI for the UK in a year, which saw further declines in homebuilding, did not cause a measurable effect. German Bunds, on the other hand, are outperforming today relatively speaking.

The Norwegian Krona (NOK) is the having the worst risk-adjusted returns in currencies overnight. News reports indicated that the government is proposing to lower its corporate tax rate from 27% to 20%, reduce personal tax rates, and introduce a 42% progessive tax. The thing that has the currency moving is the proposal to increase the Value Added Tax (VAT), or sales tax, to 15%, which would be a net negative on the economy.

The Reserve Bank of Australia (RBA) kept rates and policy on hold at its decision last night. It made no changes to its comments on monetary policy and the value of the Aussie dollar (AUD), which it still feels is too high, especially in light of the substantial drops in commodity prices this year. The main contributor for the movement in Australian bonds and the lower AUD is an outlook change from Barclays that the RBA will hike rates six months later (i.e. from 3Q2015 to 1Q2016), even though many other forecasters are expecting rate cuts next year.

Lastly, the Russian ruble continues to weaken by multiple percentage points each day. Today, the damage is another 3.9% against a basket of the USD and EUR. That brings the tally to a 15% drop over the past five days. CEO of Russian VTB Bank said at a conference today that he is seeing "some panic" in the Russian banking system because of the lower oil prices and higher interest rates (his bank has had to seek state-backed capital injections). Additionally, the Deputy Russian Economic Minister made a statement that the government now sees a 0.8% contraction rather than 1.2% growth in 2015, which is more than likely on the optimistic side.

Data:
- UK construction PMI (Nov) down to 59.4 vs 61.0 expected, prior 61.4
- Australia current account balance (3Q) up to -12.5B vs -13.5B exp, prior -13.7B
- Australia building approvals MoM (Oct) up 11.4% vs 5.0% exp, prior -11.0%

Twitter: @MichaelSedacca

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No positions in stocks mentioned.

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