Date: January 02, 2019
U.S. Stock Futures Slide With European Shares After China Data
U.S. stock-index futures extended declines after a gauge for manufacturing output in China fell into contraction territory for the first time since May 2017, fueling global growth concerns. March contracts on the S&P 500 Index fell as much as 2.3 percent, after a closely watched gauge of Chinese manufacturing had its lowest reading since May 2017. The contracts bounced and were down 1.6 percent at 10:40 a.m. in London. Nasdaq 100 Index futures and those on the Dow Jones Industrial Average dropped 2.2 percent and 1.5 percent respectively. European equities also retreated, with the Stoxx Europe 600 index 1 percent lower, led down by sectors sensitive to global growth such as basic resources and autos. Banks and insurers were among the laggards. Europe’s Purchasing Managers’ Index (PMI) readings showed weakness, with Italy contracting, while France’s survey signaled activity shrank for the first time since late 2016. The euro-zone reading was the lowest in almost two years. The Caixin Media and IHS Markit China’s December manufacturing PMI fell to 49.7 from 50.2 in November, below the 50 threshold for the first time since May 2017. That follows the official gauge, which fell into the same zone for the first time since July 2016 on Monday. Adding to global growth concerns, Singapore’s export-reliant economy grew an annualized 1.6 percent in the three months through December from the third quarter, easing from a revised 3.5 percent gain previously, according to an advance estimate from the Ministry of Trade and Industry Wednesday. The median forecast in a Bloomberg News survey of economists was for a 3.6 percent expansion. “The disappointment that came through in December has transferred into January as well,” said Jingyi Pan, a Singapore-based market strategist at IG Asia Pte. While there was some small development in uncertain Washington politics, it’s a reminder of the U.S.-China trade tensions and “brings back to the surface worries on growth,” she said. A fourth quarter sell-off in American equities sent the benchmark to the brink of a bear market late last year as fears of a recession crept up amid intensified U.S.-China trade tensions and a fourth rate hike by the Federal Reserve. The S&P 500 Index closed out 2018 with a 6.2 percent decline, finishing just above 2,500 and ending its worst year since the 2008 financial crisis amid worries the global economy will weaken in 2019. FedEx Corp. last month slashed its profit forecast just three months after raising it, and pared its international freight capacity amid a slowdown in global trade in recent months, with leading indicators pointing to an ongoing deceleration in the near term. Caterpillar Inc., a bellwether of global growth, was punished by investors in October after repeating its warnings of rising costs due to higher steel prices and U.S. tariffs.
U.K. Manufacturers Step Up Stockpiling as Brexit Deadline Looms
U.K. manufacturers are intensifying their stockpiling efforts as they brace for a potentially disruptive Brexit. Factories reported an almost record increase in stocks last month, IHS Markit said in a report Wednesday. New orders also picked up as firms and their clients rushed to protect themselves before the March exit date. “There is increased concern that the U.K. could leave the EU without a deal next March and this will lead to serious disruptions,” said Howard Archer, chief economic advisor at EY Item Club. The U.K. is set to leave the European Union on March 29, and reaching an exit agreement before the deadline remains uncertain. Crashing out of the bloc may leave the country facing a slew of new customs and border checks and other regulatory hurdles. In December, the U.K. government stepped up preparations for a no-deal withdrawal, including asking pharmaceutical companies and supermarkets to stockpile drugs and food, and putting 3,500 troops on standby. For manufacturers, increases in stock holdings and a strong inflow of new orders reflected preparations from both factories and their clients, Markit said. Its Purchasing Managers Index for the industry rose more than forecast to a six-month high in December. Even with the pickup, the overall picture in the sector remains weak. The average reading for the final three months of the year was the lowest since the third quarter of 2016. Manufacturers’ confidence levels are only slightly above the 27-month low in November, with firms citing Brexit and exchange-rate uncertainty as a weight on the outlook. Any positive economic impact from the inventory accumulation is likely to be short-lived, according to Samuel Tombs, an economist at Pantheon Macroeconomics. Overall growth will likely be below trend in the fourth and first quarters, he said.
China Leads Slump in Asia Factories, Euro-Area Growth Cools
Factory conditions across Asia’s most export-oriented economies slumped in December amid a U.S.-China trade war and a fading technology boom, while momentum in the euro region also weakened. A Chinese manufacturing gauge is signaling contraction for the first time since mid-2017, while measures for Taiwan, Malaysia and export bellwether South Korea also point to declines in activity. Factory growth in the euro zone fell to the lowest in almost three years. The disappointing numbers out of China sent stocks lower across Europe and Asia on Wednesday, the first full day of trading in 2019. U.S. equity futures tumbled. Growth in the world’s largest economies is set to slow this year. Ongoing trade tensions between the U.S. and China are hurting demand across Asia’s manufacturing hubs and export-oriented European economies including Germany. Political uncertainty is weighing on confidence, while the U.S. government remains shut because of a budget fight over border security. A gauge for U.S. factories is due at 9:45 a.m. Washington time. Five Federal Reserve indexes of regional manufacturing all slumped in December, the first time they’ve fallen in unison since May 2016. In the U.K., a factory gauge improved, though that was largely due to companies stockpiling for a potentially disruptive Brexit. “The PMIs are signaling trouble ahead,” said Hak Bin Chua, an economist at Maybank Kim Eng Research Pte in Singapore. “There have been some healthy trade numbers in some countries, but this is probably short-lived.” Bloomberg’s Global Trade Checkup is softening after an earlier rush to front-load export orders ahead of threatened tariffs. While President Donald Trump has signaled that negotiations with China are making progress, economists remain wary that the talks could stall ahead of a March 1 deadline.