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What Will December Bring?

Big business are unconvinced on December Fed hike, but the Fed will rise interest rates, for the wrong reasons : to show they are independent,to acknowledge that the US macro indicators are favorable, but then reality will catch up with that action and the rest of the world and the liquidity that will pour in Europe, Japan and China

After a pretty sluggish November,(major U.S. indices were flat for the month despite volatile swings), traders are determining where the markets will go to close out the year.

Major events this week, including a crucial ECB meeting, speeches from Janet Yellen, OPEC’s conference in Vienna and the U.S. November jobs report, will likely give clues about that direction.

More than a half-dozen Fed officials are also scheduled to speak over the next few days, which may provide further hints about upcoming monetary policy.

Economy

The IMF added the yuan to its Special Drawing Rights basket yesterday, but what does that mean for the currency? 1) Effective Oct. 1, 2016, the renminbi will officially be recognized as a reserve currency, meaning central banks will have an alternative for foreign exchange reserves. 2) The basket’s currency weighting will get mixed up, with the euro seeing the biggest percentage drop from the new formula. 3) The yuan also meets criteria of being “freely usable,” or widely used for international payments and in foreign exchange markets, boosting China’s influence in the global economy.

The pace of contraction in China’s manufacturing sector slowed in November and the services sector grew, signs that the country’s transition to a consumption-driven economy could be back on track. China’s official manufacturing PMI stood at a three-year low of 49.6, but the services PMI edged up to 53.6 from 53.1 in October. The services sector is the biggest contributor to China’s GDP. Separately, Markit’s Final Manufacturing PMI for Japan rose to 52.6 last month, its fastest pace in 20 months, boosting the Nikkei Stock Average over the 20,000-point mark for the first time since Aug. 20.

What about the eurozone? Factory growth in the region accelerated amid a continued decline in unemployment, extending a tepid recovery that will likely require more stimulus from the ECB. Markit’s PMI for the euro area rose to 52.8 in November from 52.3, while joblessness unexpectedly fell to 10.7% in October, from 10.8% the previous month. “It’s by no means a spectacular pace of expansion,” said Chris Williamson, chief economist at Markit in London.

The Reserve Bank of Australia has left its cash rate unchanged at 2%, judging that the prospects for the economy have improved. “While GDP growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions in non-mining sectors over the past year,” the central bank said. “This has been accompanied by stronger growth in employment and a steady rate of unemployment.”

World leaders are urging a breakthrough in the UN climate conference in Paris, calling for a “decisive turn in the fight against global warming.” While some are voicing concerns regarding the form of a potential agreement, others are arguing that the quality of the deal reached is more important than whether its legally enforceable. As the summit continues into a second day, the capitals of the world’s two most populous nations, China and India, were blanketed in hazardous smog, with Beijing on an “orange” pollution alert, the second-highest level.

German Chancellor Angela Merkel’s cabinet has approved plans to join the military campaign against Islamic State in Syria, signaling solidarity with France after the terror attacks in Paris. Under the new campaign, Germany will deploy Tornado reconnaissance jets, refueling aircraft, a frigate and up to 1,200 military personnel to the region. British is also expected to launch military action in Syria within days after Labour leader Jeremy Corbyn agreed to give his MPs a free vote on the issue.

Bond investors and federal lawmakers will be watching whether Puerto Rico makes a $354M debt payment owed to creditors today, while a U.S. congressional hearing about the island’s fiscal crisis takes place in Washington. Analysts have warned that the debt owed by the Government Development Bank could be the first major payment skipped by the San Juan government as part of a strategy to preserve cash and force creditors to negotiate.

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