Date: January 14, 2019
Stocks Fall, Bonds Climb as China Data Disappoints: Markets Wrap
U.S. equity futures followed stocks in Europe and Asia lower on Monday as China trade data showed a worse-than-expected slump, reigniting concerns about global growth. Treasury yields fell and the dollar held steady. Futures on the Dow, Nasdaq and S&P 500 held losses as Citigroup Inc. slipped in pre-market trading following a fourth-quarter revenue miss. The Stoxx Europe 600 Index snapped four days of gains, dragged lower by technology companies. In Asia, losses were most pronounced in Hong Kong after China posted the worst import and export figures since 2016. The euro held steady even as data showed industrial output slowed, while the pound edged higher before Tuesday’s crucial vote on Brexit. This month’s buoyancy in global equities, triggered by signs of progress in U.S.-China trade talks and dovish commentary from Federal Reserve officials, faces a test with the Chinese data underscoring the impact of the trade spat. The next hurdles to clear will be a slew of U.S. bank profit reports and earnings season, amid worries global growth is slowing. Also weighing on sentiment is the partial U.S government shutdown that’s entered its fourth week. Elsewhere, West Texas Intermediate crude traded near $51 a barrel. Emerging market currencies and shares dipped. Japan was closed for a holiday. Some of the world’s biggest banks announce earnings, including JPMorgan, Bank of America, Wells Fargo, Morgan Stanley and Goldman Sachs. Alcoa, Indian IT company Mindtree, Netflix, Taiwan Semiconductor, American Express and BlackRock also post results.
ECB Faces Now-or-Never Dilemma for 2019 Rate Hike, Lampe Says
The European Central Bank risks missing its chance to raise interest rates in this economic cycle if it doesn’t act this year, according to a German private bank. Investors are betting that the euro zone’s economic slowdown — in part a consequence of global risks including U.S.-led protectionism and Brexit — will cause the ECB to push back its gradual exit from negative rates to next year. In a note to clients, Bankhaus Lampe questions the rationale for that view. “This delay makes little sense to us, as the fundamental environment in 2020 is if anything weaker,” said Alexander Krueger, an economist at the bank in Dusseldorf. “Economic clouds are showing for the world economy, and above all for the U.S.” The ECB, which holds its next policy decision on Jan. 24, says it’ll keep rates at record lows at least through the summer of 2019. Bankhaus Lampe says the central bank is well behind the curve and so should hike in the final quarter. “Two or three rate hikes distributed over one and a half years won’t damage the economy,” Krueger said. “If they dangle the carrot forever and a day, the armory of conventional policy will remain yawningly bare.”
China’s Slumping Trade Adds Pressure for Settlement With Trump
China’s exports slumped in December as a rush of orders to beat expected tariffs showed signs of fading and as domestic buyers succumbed to a worsening economic outlook. The worse than expected figures, with exports falling 4.4 percent in December from a year earlier, set a grim domestic backdrop for China’s negotiators as they seek a deal to end the stand-off with the Trump administration. The fall in exports was the worst result since 2016 in dollar terms while imports slumped 7.6 percent, also the worst reading since 2016 and hinting at softening demand at home. At the same time, China’s overall trade surplus with the U.S. hit a record in 2018, underscoring the political imperative to cut a deal ahead of a March 1 deadline after which U.S. President Donald Trump has threatened to impose additional tariffs on Chinese goods. The numbers show how the world’s biggest trading nation is being hit by a confluence of slowing global growth and by uncertainty linked to the trade war–factors that are expected to linger in the near term, at least. “The bad trade data will quite likely increase the pressure on China to achieve a deal, or at least a suspension of the U.S. tariff hikes,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. “At the same time, the U.S. side also seems to be under more pressure to de-escalate tension in terms of news on the economy and financial markets than a few months ago.” Chinese Vice Premier Liu He is slated to travel to the U.S. for further talks around the end of this month, with little progress seen so far on the tougher areas of the dispute such as China’s treatment of intellectual property or support for state firms. The headwinds from trade comes at a time when policy makers are already grappling with decelerating consumption, falling factory sentiment, fears of producer deflation and a worsening employment outlook.