Krassimir Ivandjiiski
Home Archive Search Sponsors About us Contact

Select Language


Global Market Bloodbath Returns As Futures Tumble, Asia Suffers Worst Start To Year Since 2016

Zero Hedge

Wed, 01/02/2019 - 07:19




Any hope for a reversal of the ominous market trends of last year and a positive start to 2019 were quickly dashed overnight when what was originally a gain of as much as 0.6% in S&P futures early in the session was promptly extinguished as futures slumped deep in the red alongside a sea of red in global stocks, after the Caixin China PMI manufacturing survey fell into contraction territory for the first time since May 2017, sending Asian stocks tumbling to the worst start to the year since 2016, while poor PMI reports out of Europe only confirmed that the global economy is slowing.

Weak manufacturing-activity surveys across Asia were followed by disappointing numbers in the euro zone, sending MSCI’s index of world shares 0.4% lower.

"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.

Initially, S&P500 futures rose 0.6%, after President Trump invited the top congressional leaders from both parties to a White House briefing on border security Wednesday and suggested he wants to “make a deal” to end the government shutdown. However, this initial optimism faded quickly and futures fell as much as 2.3%, down almost 70 points from session highs reaching a low of 2,452 and trading down 1.4% last, after a closely watched index of Chinese manufacturing for small and medium enterprises had its lowest reading since May 2017, confirming a prior contractionary print from the official Chinese PMI which tracks larger companies. Nasdaq 100 Index futures and those on the Dow Jones dropped 2.2 percent and 1.5 percent respectively.

The overnight mood reversal took place after the Caixin China December manufacturing PMI fell to 49.7 from 50.2 in November, below the 50 "contraction" threshold for the first time since May 2017. That followed the official gauge, which unexpectedly fell into the same zone for the first time since July 2016 on Monday.

"The trend remains lower for now,” Kyle Rodda, an analyst at IG Group Holdings Plc, told Bloomberg TV. “We’ve had rate hikes from the Fed effectively priced out, so we are looking at a situation when markets are thinking that we are entering a period of slower growth."

It wasn't just China: Taiwan’s Nikkei and IHS Markit manufacturing purchasing managers’ index fell to 47.7 in December from 48.4 in November, down from 56.6 a year earlier, partly due to a fall in demand for machinery and electronics goods, along with information and communications equipment, amid slowing orders for new smartphones and the simmering trade war. Malaysia’s PMI fell to 46.8 from 48.2, its lowest reading since the series began. New orders were at their weakest since May. South Korea’s PMI remained in contractionary territory for the second consecutive month even as the overall reading nudged higher. Vietnam’s PMI fell to 53.8, while the Philippines PMI fell to 53.2.

"The PMIs are signaling trouble ahead," said Hak Bin Chua, an economist at Maybank Kim Eng Research. "There have been some healthy trade numbers in some countries, but this is probably short-lived."

As a result, the benchmark gauge of Asia-Pacific stocks excluding Japan slumped 1.9 percent as traders returned to work in key regions including Hong Kong, China, Taiwan and Korea. Japan markets are closed and reopen on Jan. 4.  Wednesday’s plunge, which is the worst start to the year since 2016 was largely the result of the abovementioned plunge in the Chinese Caixin PMI.

“Asian markets took a deep dive into negative territory following another disappointing China Caixin manufacturing PMI reading,” said Margaret Yang, market analyst at CMC Markets, in a note to clients. “China manufacturing PMI is falling at a pace faster than economists’ forecast, suggesting global economic slowdown and trade war is hurting the country’s manufacturing activities.”

Chinese H shares lost 2.8% and Shanghai Composite dropped 1.3% after Caixin manufacturing PMI signals contraction for the first time since May 2017. S&P futures reverse early rally to trade 0.8% weaker; MSCI Asia Pacific index falls 0.9% with Japan and New Zealand markets closed for New Year holidays.

Understandably, U.S.-listed China stocks were among the biggest decliners in Wednesday’s pre-market trading as the iShares China Large-Cap ETF fell 2.5% to its lowest since October before paring the decline; the iShares MSCI Emerging Market ETF fell 1.4%. Stocks trading lower included NIO -4.6%, BiliBili -3.4%, Huya -3.1%, Pinduoduo -2.8%, Tencent Music -2.8%, iQIYI -2.2%, Alibaba -1.8%, Qudian -1.6%, Momo -1.3%

Adding to global growth concerns, Singapore’s export-reliant economy grew only 1.6% in the 4th quarter, down sharply from a revised 3.5% previously, and far below the 3.6% expected print.

The Asian gloom continued in Europe, where stocks also dropped with the Stoxx Europe 600 index trading 0.8% lower, dragged by growth sensitive sectors such as basic resources and autos. Banks and insurers were among the laggards after Europe’s PMI readings confirmed the weakness reported earlier in China, with Italy contracting, while France’s survey signaled activity shrank for the first time since late 2016. The euro-zone reading reached its lowest since February 2016. Future output PMIs were at a six-year low.

There were also renewed fears in Europe over the clean-up of Italy’s banks, with trading in shares of Banca Carige suspended. Carige failed last month to win shareholder backing for a share issue that was part of a rescue plan. An index of Italian bank shares fell 2.5 percent.

“It’s a continuation of the worries over growth. You can see them in the Asian numbers, which all confirm that we have passed peak growth levels,” said Tim Graf, chief macro strategist at State Street Global Advisors. The knock-on effects from China’s slowdown and global trade tensions were rippling across Asia and Europe, he said. “I don’t think the trade story goes away, and Europe, being an open economy, is still vulnerable,” Graf said.

The data suggests there will be no respite for equities or commodities after the losses of 2018, with "Doctor" Copper, a key gauge of world growth sentiment, falling to 3 1/2-month lows , while Brent crude futures fell 1 percent after losing 19.5 percent in 2018

Commodity-driven currencies also lost ground, led by the Australian dollar. Often used as a proxy for China sentiment, the Aussie fell as much as 0.7 percent to its lowest since February 2016 at $0.70015.

Meanwhile, the continuation of the stock market rout again drove investors into the safety of bonds. The 10-year German Bund yield slumped to 20-month lows of 0.18 percent, its biggest one-day fall in two years, while the US 10Y yield dropped below 2.65%, the lowest level since January 2018.

2Y TSY yields were 2.49% , just barely above the cash rate, from a peak of 2.977% in November. The spread between two- and 10-year yields has in turn shrunk to the smallest since 2007, a flattening that has been a portent of recessions in the past. The German 2-10 yield curve is the flattest since November 2016.

Gold and the yen were the other beneficiaries, with the Japanese currency - the best performer of 2018 - continuing its outperformance in 2019 - and while gold topped six-month highs, the yen extended its rally against the dollar to seven-month highs around 108.9. It strengthened to a 19-month peak against the euro.

“Traditional safe-haven type flows are going into the yen. As we see increased volatility (on world markets), the Japanese (investors) are probably repatriatriating foreign assets,” said Charles St Arnaud, senior investment strategist at Lombard Odier Investment Managers.

Meanwhile, after some early weakness, the dollar inched up against a basket of currencies with the Bloomberg dollar index rising to session highs, just above 1197. The greenback has come under pressure from a fall in U.S. Treasury yields as investors wager the Federal Reserve will not raise rates again. While the Fed itself still projects at least two more hikes, money markets now imply a quarter-point cut by mid-2020.

Fed Chairman Jerome Powell may comment on the outlook when he takes part in a discussion with former Fed chairs Janet Yellen and Ben Bernanke on Friday, while the manufacturing survey and the December payrolls report should shed more light when they emerge on Thursday and Friday respectively.

“What is clear is that the global synchronized growth story that propelled risk assets higher has come to the end of its current run,” OCBC Bank told clients. “Inexorably flattening yield curves ... have poured cold water on further policy normalization going ahead.”

Market Snapshot

  • S&P 500 futures down 1.5% to 2,468.25
  • STOXX Europe 600 down 1.1% to 334.12
  • MXAP down 0.9% to 145.48
  • MXAPJ down 1.8% to 468.48
  • Nikkei down 0.3% to 20,014.77
  • Topix down 0.5% to 1,494.09
  • Hang Seng Index down 2.8% to 25,130.35
  • Shanghai Composite down 1.2% to 2,465.29
  • Sensex down 0.8% to 35,950.08
  • Australia S&P/ASX 200 down 1.6% to 5,557.76
  • Kospi down 1.5% to 2,010.00
  • German 10Y yield fell 6.3 bps to 0.179%
  • Euro down 0.2% to $1.1438
  • Italian 10Y yield unchanged at 2.384%
  • Spanish 10Y yield fell 0.9 bps to 1.407%
  • Brent Futures down 1.4% to $53.05/bbl
  • Gold spot up 0.4% to $1,288.01
  • U.S. Dollar Index up 0.1% to 96.18

Top Overnight News from Bloomberg

  • Factory conditions across some of Asia’s most export-oriented economies slumped in December, hit by the U.S.-China trade war and a fading technology boom.
  • In China, the Caixin Media and IHS Markit PMI fell to 49.7 from 50.2, its lowest reading since May 2017. That confirms a trend seen in the official PMI on Monday, which showed a drop to 49.4 in December, the weakest since early 2016
  • U.S. stock-index futures erased earlier gains after Caixin PMI dropped into contraction territory, fueling global growth concerns
  • President Donald Trump invited the top congressional leaders from both parties to a White House briefing on border security Wednesday and suggested he wants to “make a deal” to end the government shutdown
  • President Sergio Mattarella, who has sought to rein in Italy’s populist leaders, took the government to task for ramming spending plans through parliament and warned that the country’s debt mountain penalizes ordinary citizens
  • The lackluster demand for Asian dollar bonds is likely to recover as investors who shunned weaker quality notes during the turbulent final quarter of 2018 now see them as too cheap to ignore. Asia dollar bond sales may total $250 billion to $300 billion in 2019, according to a Bloomberg survey
  • Yen rises versus all major peers after China’s Caixin manufacturing PMI fell into contraction territory, adding to the weight of other data signaling a slowing Chinese economy and driving demand for haven assets. Aussie leads declines against the dollar, nearing a 70 cents psychological level.
  • The European Central Bank took the unprecedented step of placing the cash-strapped Italian lender Banca Carige SpA in temporary administration, a move that could be a prelude to a sale or merger.

Stocks in developing nations fell the most in three weeks as new evidence of slowing Chinese growth compounded investor fears about prospects for the global economy. A closely watched manufacturing gauge in China had its lowest reading since May 2017 amid ongoing trade tensions with America. MSCI’s gauge of stocks slumped after closing out 2017 with four straight days of gains, with shares in Johannesburg tumbling more than three percent. Most emerging-market currencies weakened against the dollar led by Turkey’s lira, while the zloty extended losses versus the euro after Poland’s manufacturing PMI dropped to its lowest mark since 2013. “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. Political developments in Washington served as a reminder of the U.S.-China trade tensions and brought “back to the surface worries on growth,” she said.

Top Asian News

  • China Leads Slump in Asia Factories as Trade War Cools Demand
  • Singapore’s Export-Reliant Economy Ends 2018 With Slower Growth
  • China’s Xi Seeks Talks to Unify Taiwan With Mainland
  • Asia’s Stocks Post Worst Start to Year Since 2016: Blame China

Major European Indices [Euro Stoxx 50 -0.4%] are in the red following on from the poor performance seen in Aisa. (Of note the SMI remains closed due to Berchtold’s day). The CAC (-1.4%) is underperforming its peers with index heavyweight Renault (-3.2%) towards the bottom of the index as the Co’s Renault-Samsung Motors division reported a significant decrease in year-on-year sales for December; in addition, the political situation remains fraught in France. Sectors are also in the red, with some underperformance seen in materials and energy names due to Chinese Manufacturing PMI showing a contraction, and oil prices in the red due to continued oversupply concerns respectively.

Top European News

  • Italian Populist Di Maio Promises to Cut Pay for Lawmakers
  • Italian Manufacturing Shrinks Again as Nation Nears Recession
  • European Banks Stock Drops as Banca Carige Gets Administrators
  • German Telecom Companies Sue Regulator Over 5G Auction Rules

In FX, DXY entered the EU session on the backfoot with losses of around 0.3% and below the 96.00 level with JPY out-muscling the greenback during Asia-Pac trade as USD/JPY hit a 7-month low.

  • JPY strength was largely driven by the broader risk environment as disappointing Chinese data overnight and the ongoing US government shutdown remain a key focus for investors. As the European session progressed, USD made a resurgence against its peers (ex-JPY) as losses in European equities accelerated following the cash open; DXY reclaimed 96.00 to the upside and trades relatively unchanged.
  • EUR/USD eventually fell victim to the recovery in the USD (after testing 1.1500 to the upside during Asia-Pac trade) as the pair slipped below 1.1450 with some analysts also suggesting EUR/JPY selling as a potential catalyst for the move. As such, the pair has drifted towards 675mln of option expiries between 1.1452-30 with this morning’s PMI metrics from the Eurozone unable to spur much in the way of noteworthy price action with core readings unrevised from their prior’s.
  • For GBP/USD, the pair began the session on the backfoot and slipped back below 1.2700 despite a high print of 1.2774 seen during Asia-Pac hours. Brexit-related commentary has been relatively light thus far with Parliament not returning from their winter break until 7th Jan. As such, the most interesting development for UK assets today has been the latest manufacturing PMI print which came in at 54.2 vs. Exp. 52.5 (Prev. 53.1). Cable briefly reclaimed 1.2700 to the upside before reversing gains with a pick-up in new orders largely attributed to stock-piling ahead of Brexit.
  • AUD/USD fell victim to the disappointing Chinese data overnight which saw Caixin mfg PMI slip into contractionary territory for the first time in 19 months. Losses were also spurred on by the aforementioned pick-up in USD, however, the pair maintains its status on a 0.7000 handle with option-related bids ahead of the key level said to have stopped the rot in the pair.

In commodities, Brent (-1.0%) and WTI (-1.0%) prices are down due to oversupply concerns as US output continues to increase, with US output reaching an all-time high of 11.5mln BPD in October and Russia’s December production of 11.45mln BPD vs. Prev. 11.37mln BPD. Prices are additionally weighed on by signs of a economic slowdown in China, with a Reuters survey of analysts forecasting 2019 average Brent prices at just over USD 69 a barrel; a drop of over USD 5 compared with the previous projection. UAE Energy Minister Mazrouei says that in light of the agreed OPEC+ production cut he is optimistic that oil market balance can be achieved in the first quarter of 2019. Gold (+0.4%) is in the green due to dollar weakness albeit just off of USD 1287.39/oz a 6-month high which was reached earlier in the session. Elsewhere, copper prices have moved lower as Chinese Manufacturing PMI has fallen into a contraction for the first time in 19 months.

US Event Calendar

  • 9:45am: Markit US Manufacturing PMI, est. 53.9, prior 53.9



"Строго секретно" излиза от 1991г. Вестникът е уникално издание за кулисите на висшата политика, геополитиката, шпионажа, финансовите престъпления, конспирацията, невероятното, трагичното и смешното.
Strogo Sekretno is the home for the highest politics, geopolitics, geo-economics, world crisis, weapons, intelligence, financial crimes...
(c) 1991-2024,, All Rights Reserved
Contents may not be reproduces in whole or in part without permission of publisher. Information presented in Strogo Sekretno may or may not represent the views of Strogo Sekretno, its staff, or its advertisers.
Strogo Sekretno assume no responsibility for the reliability of advertisements presented in the newspaper. Strogo Sekretno respects the privacy of our subscribers. Our subscriber mailing list is not available for sale or sharing.
Reprint permission: