Jan 2, 2019, by Lorcan Roche Kelly
New year, same old story
Equity markets are starting 2019 as they ended 2018, with stocks under pressure across the globe. Overnight, the MSCI Asia Pacific Index dropped 0.9 percent as disappointing Chinese data soured investor sentiment in the region. Japanese markets were closed. In Europe, the Stoxx 600 Index was 1.1 percent lower at 5:45 a.m. Eastern Time, with signs of slowing growth momentum preying on nerves. S&P 500 futures pointed to a sharp drop at the open, the 10-year Treasury yield was at 2.656 percent and gold was higher.
The proximate catalyst for the selloff this morning was factory data from Asia and Europe, with China’s Caixin Media and IHS Markit PMI falling to 49.7, the lowest since May 2017. In Taiwan, Malaysia and South Korea readings were also below 50, indicating a contraction in activity. In Europe, while there were more signs of economic weakness in the PMI number, it seems not to be enough yet to derail further ECB tightening expected this year. U.K. manufacturing bucked the trend, with growth unexpectedly rising to a six-month high, but that came with a caveat as the boost was probably the result of preparations for a disruptive Brexit.
Ready to talk
The partial U.S. government shutdown moved into a 12th day with the hope of a breakthrough offered by both sides prepared to enter talks. President Donald Trump has invited Congressional leaders across parties to the White House later today. But a compromise in the new Congress – and its Democratic House majority – may be harder to reach.
Crude stays low
Another place with the new year starting as the old one ended is the oil market where volatility remains the main theme. A barrel of West Texas Intermediate for February delivery was trading at $44.84 by 5:45 a.m. as global growth worries were coupled with uncertainty over where crude output actually is. Russian production reached another post-Soviet high in 2018, despite the country’s co-operation with OPEC on global supply cuts.
Rush to safety
Stocks down, growth fears, U.S. political impasse and commodities under pressure all point to one thing – a flight to safety for investors. One look at bond yields this morning shows that is exactly what is going on. The yield on the German 10-year fell to the lowest since April 2017, as developed market bonds rallied around the world. Interestingly, a key indicator watched by the Fed as one of the most accurate gauges of economic health is pricing in lower rates for the first time in a decade.