The Monday Market Minute

  • Global stocks slide on the opening day of 2019 trading after weaker-than-expected manufacturing data raises concerns for growth in the world's biggest economies. 
  • China's manufacturing sector contracts for the first time in 10 months in December, private data indicates, with a similar measure in France also falling to the lowest since September 2016.
  • European stocks weaken, led by steep declines in France, as good news from Italy's budget talks is offset by news that administrators will take over Banca Cargie, Italy's 10th-largest lender, following a capital increase failure.
  • U.S. stocks set to open sharply lower, following the worst year for markets since 2008, with the Dow poised for a 370-point opening bell decline ahead of manufacturing data at 9:45 am eastern time.

Market Snapshot

Global stocks trade lower across the board Wednesday, with benchmarks around the world sliding into the red following weaker-than-expected manufacturing data from China and Europe that suggests the ongoing trade dispute between Washington and Beijing will continue to take its toll on global economic growth.

A key private reading of manufacturing activity in China, the Caixin-Markit PMI, slipped below the 50 level that separates growth from contraction for the first time in 19 months, according to data published Wednesday, as similar activity gauges around the region showed associated weakness over the month of December.

The gloomy snapshot helped pull stocks in China deeply into the red  Wednesday, with the Shanghai Composite falling 1.15%, extending the 25%-plus decline booked over the whole of 2018, while markets in Hong Kong (-2.8%) and Shenzen (-1.37%) followed suit. Japan's Nikkei 225 was closed for a public holiday Wednesday, but the cautious tone of the session still flowed towards Tokyo, with investors taking the yen 0.3% higher to 109.21 against the U.S dollar.

Early indications from U.S. equity futures suggest a similarly muted session on Wall Street, with contracts tied to the Dow Jones Industrial Average indicating a 420 point opening bell decline and those linked to the S&P 500 guiding to a 43-point pullback for the broader benchmark. Nasdaq Composite futures suggest a 160 point slide for the tech-focused index. 

European stocks were also weaker at the start of trading, with the Stoxx 600 falling 0.66%, even as investors cheered a weekend move by lawmakers in Rome to endorse the government's 2019 budget, which had received guarded approval from European Commission officials in Brussels late last year. 

The final IHS Markit PMI reading for Europe slipped to 51.4, the lowest since February 2016, while activity in German hit a 33-month low of 51.5.

"The last three months of 2018 saw manufacturers report the worst quarterly performance in terms of production since the second quarter of 2013," said IHS Markit's chief economist Chris Williamson. "Worryingly, current production levels were achieved only by firms eating into backlogs of orders received in prior months and a dearth of new orders means capacity will be cut back in coming months unless demand revives."

The budget truce pushed Italian government bond yields sharply lower, compressing the extra yield, or spread, that investors demand to hold the triple-B paper instead of triple-A rate German bunds to a two-year low of 79.9 basis points. The mood was somewhat soured, however, by news that the European Central Bank ordered temporary administrators to take over regional lender Banca Carige SpA, the country's tenth largest bank, after it failed to raise around €400 million in new share capital last week.

Italy's FTSE MIB fell 1.3% by mid-day in Milan, while the FTSE Italia Banks index slumped 2.9% as shares in Banca Cargie were suspended for the session.

Away from equities, the market's defensive tone held down government bond yields in markets around the world, with 10-year U.S. Treasuries trading at 2.661% and 10-year German bunds marked at 0.171% as investors re-set growth assumptions following the weaker manufacturing readings in Europe and Asia and continued to pare bets on Federal Reserve rate hikes in 2019.

Those moves also kept the U.S. dollar index, which gauges the greenback against a basket of six global currencies, on the back foot for much of the Asia session as it fell to a mid-October low of 95.88 before rebounding to 96.22 as the European manufacturing data began to trickle in.

Global oil prices were also hit by the broader economic weakness, with Brent crude falling more than $1 per barrel, helped to the downside by a Reuters report that China's Ministry of Commerce allocated a smaller-than-expected import quota of 89.84 million tons of oil, down more than 25% from the same period last year.

Brent crude contracts for February delivery, the global benchmark, were marked 68 cents lower from their Monday close in New York and changing hands at $53.12 per barrel while WTI contracts for the same month were marked 72 cents lower at $44.69 per barrel.