Volatility and volume dwindles this week as the holiday season starts but there are a couple of key events which might keep traders jittery.

The two-day FOMC meeting starts today and will reveal the central bank’s outlook on economic development, employment conditions and inflation. The Fed is widely expected to keep interest rates unchanged for December and the market doesn’t expect any further cuts.

Last Friday’s US nonfarm payroll report registered an astonishing gain of 266k jobs in November and the unemployment rate fell to 3.5%. Decent wage growth rate of 3.1% is likely to add to inflation pressure. Strong jobs market conditions suggests that the Fed can hold its rate unchanged in the foreseeable future unless material change in the macro condition is observed. With the jobs market expanding at a faster-than-expected pace, the Fed is likely to remain patient in providing any further stimulus.

The base case of recent low volatility is based on the assumption that Washington and Beijing will reach a resolution to avoid the December 15th tariff deadline. In an event that no progress is made by then and the tariffs kick in, markets are likely to have a knee-jerk reaction; which will result in unwinding activities in risk assets and a rally in safe-havens.

China’s November exports dropped by only 1 percent from a year ago, continuing to show signs of stabilization. Imports growth have flipped to the positive territory for the first time seen in seven months, albeit at a marginal pace. All these are encouraging signals.

We are finally seeing light at the end of the tunnel amid this global manufacturing downturn in 2019 and the global cyclical downswing could bottom out as soon as Q12020 as suggested by earnings forecast and recently released PMI surveys. 

According to the recent manufacturingPMI survey, global manufacturing activity increased for the first time in seven months in November. New orders and output edged higher, showing the strongest gains seen so far this year, helping employment levels stabilize.

Outlook brightens as higher PMIs were recorded in 18 out of 30 markets. The highest number in two years, including US and China. This signals further improvement in global business conditions in coming months.

Businessconfidence remained historically muted, however, as global economic uncertainty continued to weigh on expectations. Firms remain very concerned about the disruptive effects of tariffs and the trade war in particular, both in terms of rising prices and weakened demand.

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