China to Open Fiscal Taps

The very first release of 2016, just after midnight GMT will be the Chinese official PMIs. That's a fitting start to what will be a year of laser focus on the economy in the Far East.

A report on Tuesday suggested China may boost government spending and run a deficit at 3% of GDP or more in the year ahead. That would be the loosest policy in a half-century and up from the 2.3% target in 2015.

The shift is being billed as a way maintain strong growth as structural reforms set in. We've recently got a sense of where the latest reforms will hit. Consumers are being hit by tighter lending standards and local governments are being reigned in. The PBOC has loosened policy throughout the year and another cut could come at any time.

The question is: Is it enough? With China, the opacity and size of the economy make evaluations extremely difficult. Chinese markets soured to start the week but they bounced back along with broader equities and commodities. We're cautious about drawing any conclusions from markets at year end.

However the year ahead will have more focus on China than ever. There is no doubt that yuan weakness will be a major story as we continue to hit fresh four year highs.

Commitments of Traders

Speculative net futures trader positions as of the close last Tuesday. Net short denoted by - long by +.

EUR -161K vs -160K prior

JPY -30K vs -26K prior

GBP -27K vs -17K prior

AUD -20K vs -10K prior

CAD -52K vs -51K prior

NZD +0.2K vs +1K prior

It's rare to see anything besides position squaring at this time of year but the dovish comments from Weale triggered a wide-spread rethink on where the Bank of England is heading. Cable continued to slide over the past 24 hours and will finish the year near a 9-month low.