httpvh://www.youtube.com/watch?v=QezatwOi0L4

We mustn’t forget, with the increasing wailing and gnashing of
teeth from Europe and the US, that there is the rest of the world out there
and, by George, they’re going to publish some bad data too. Overnight Chinese
PMI from the manufacturing sector, as surveyed by HSBC, saw a fall to 48.0 vs.
51.0 previously. Anything below 50.0 shows contraction in the relevant sector
and this fall is the largest contraction since March 2009, with export markets
slipping just as Chinese small businesses are starting to complain about a
credit squeeze in funding markets. Chinese authorities do have a lot of room to
cut rates if needs be, but I think it is a correct assumption that, much like
the authorities here in the UK, inflation will soon become a secondary concern
to growth.

The survey train comes to Europe this morning as well and at a
time when the focus on growth has never been so intense. PMIs are definite
indicators of GDP prospects and contraction here frequently correlates to
weakening output further down the line. The manufacturing and services numbers
from France and Germany are expected to be confirmed at below the 50.0 level,
in line with the preliminary ‘flash’ estimates that were published earlier in
the month. Any deviation lower will only increase pressure on France’s bond
yields and heighten the calls that a ratings downgrade is just around the
corner. The euro has weakened ahead of these figures which has allowed GBPEUR
to creep back towards the 1.16 level in early trade.

A poor US GDP number also hit risk yesterday with Q3’s number
being revised lower from 2.5% to 2%, according to the latest calculations. The
weakness is as a result of businesses drawing down inventories faster than most
had expected. This may bounce back in Q4, however, as supply chain issues fall
out of the figures. Even so, this fall combined with the lack of decisions from
Capitol Hill have shown that the recent run of good data could all be for
nothing in the end. Increased talk of stimulus plans will be seen over coming
days with Obama leading the charge. The minutes of the Federal Reserve’s
previous meeting shows that Bill Dudley, an arch-dove granted, wants an extend
to quantitative easing in the United States and that some of his arguments were
met favourably.

Whether we see similar hints in today’s Bank of England minutes
is unclear. There is unlikely to be any new news this morning as most will have
been communicated through the Bank of England’s inflation report last week.
There are slight concerns that there may be further chat around an increase of
QE, considering that the previous minutes showed that some committee members
had hinted that £100bn would be more appropriate compared to the £75bn that
they eventually plumped for.

Alongside these announcements we have a German 10yr bund auction
and consumer confidence from the US at 14.55.