Investors hoping that stock markets would start 2019 on a more optimistic note to December last year have so far been left disappointed. The release of economic data that showed a first contraction in ten months for Chinese manufacturing, considered a bellwether for the global economy, has led major European indices to losses as the end of the day approaches. Asian markets also suffered losses earlier in the day and futures indicate that Wall Street will also open down on its 2018 close.
Analysts believe that the disappointing figures show the U.S.-China trade war is beginning to bite by hitting both the exports sector and also filtering down through the local supply chains serving it. That, in turn, is hitting local Chinese consumption with demand dropping as belts are tightened.
Speaking to the Financial Times, Iris Pang, an economist at ING, voiced the belief that the data means that China’s administration will have to respond with a speedy policy of economic stimulus to fuel domestic demand. If they do not, Pang believes the result could be longer term pain:
“…further weakening will pose a risk to job security. That could create a vicious downwards cycle.”
The continuing shutdown of sections of the U.S. federal government as President Trump looks to force through funding for his planned ‘wall’ along the Mexico border, the potential for further escalation in the trade war between the U.S. and China and the threat of a disorderly Brexit are all also weighing on investor sentiment. The combination of the economic fallout of these geo-political events combines with the underlying influence of central banks having largely withdrawn years of economic stimulus.
In London, the FTSE 100 opened down 0.8% though it has since recovered to a smaller loss of around 0.25% as the end of trading approaches. The Euros Stoxx 600 was down as much as 1.7% in early trading though has also dragged itself back up to a milder 0.3% fall. In South Korea, the Hang Seng slumped to a 2.8% loss, its worst since October. Over on Wall Street, the S&P 500 opened the session down 1.5% though has since halved that.
In a further sign of markets’ nervousness, safe haven assets such as the Japanese yen and gold have both risen today, the former strengthening to its strongest position against the dollar in 3 months. Gold added 0.2% to take it back to highs last achieved in June. German bund yields have also dropped today as investors move into what is considered among the safest debt-based assets in the world.
There is a glimmer of hope in the fact that both European and U.S. indices have pared their opening losses but tomorrow’s sentiment will rely heavily on how the remainder of the Wall Street session plays out this evening.