January 2, 2019: Asian and European markets plunged Wednesday, starting the New Year by extending a slide that made 2018 the worst in a decade, as fresh data reinforced worries about the stuttering Chinese economy.
With a number of potential banana skins dotting the next 12 months — including the China-US trade row and Brexit — dealers are keeping to the sidelines as they look for signs of stability.
Hong Kong led the losses, tumbling 2.8 percent, while Shanghai shed more than one percent after two indicators showed Chinese manufacturing activity shrank in December.
A private purchasing manager’s index (PMI) from Caixin Media and IHS Markit PMI came in at 49.7 from 50.2 in November and below the 50 point mark between contraction and growth. That came days after the official PMI registered 49.4.
The readings were both around lows not seen since 2017 and are the latest to highlight problems in the world's number two economy as Beijing struggles with the US trade war while also trying to address a dangerously high debt mountain.
“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,” Margaret Yang, market analyst at CMC Markets, said in a note.
And Jingyi Pan, a market strategist at IG Asia, told Bloomberg News the reading was a reminder of the US-China trade tensions and “brings back to the surface worries on growth”.
There were also market losses in Sydney, which dropped 1.6 percent, while Seoul shed 1.5 percent and Singapore slipped 0.9 percent. Taipei plunged 1.8 percent while Mumbai was one percent lower. Tokyo and Wellington were closed for public holidays.
In early European trade London fell 1.6 percent, Paris dived two percent and Frankfurt was one percent lower.
Investors were also spooked by the ongoing US government shutdown, which is now in its second week.
Donald Trump on Tuesday invited leaders from both parties to talks to end the standoff, but with Democrats refusing to pass any budget that would fund the president's Mexican border wall there is little optimism a deal can be made.
Trump deal call
For their part, Democrats, who take over the House of Representatives on Thursday, have lined up spending bills without addressing the wall.
Trump appeared to strike a more conciliatory tone on Twitter by reaching out to Nancy Pelosi, who is set to become House Speaker again.
“Border Security and the Wall 'thing' and Shutdown is not where Nancy Pelosi wanted to start her tenure as Speaker! Let's make a deal?” he tweeted.
Also on the radar are trade talks between China and the US, which are set to begin this month, with Trump hailing “big progress” on the issue at the weekend.
The president and his Chinese counterpart Xi Jinping last month agreed to a 90-day halt in their painful tariffs spat so they could resolve their differences.
Immediate attention is now on the release Friday of US jobs data, which could provide fresh evidence of the state of the world's top economy.
A strong reading would put pressure on the Federal Reserve to continue to lift interest rates, a negative for stock markets, which were battered last year partly by concerns about the rising cost of borrowing.
Both main oil contracts retreated more than one percent to put them wallowing around levels last touched in mid-2017, hit by ongoing concerns about supply and demand and extending losses suffered since the start of October.
“We'll probably start off 2019 on the same foot, weighed down by record US production as well as the lingering trade war,” Phil Streible, senior market strategist at RJO Futures in Chicago, said.
“We won't see a rebalancing of the market until past the first quarter, so I would expect us to get trading right around these lows.”
Key figures around 0820 GMT
- Hong Kong – Hang Seng: DOWN 2.8 percent at 25,130.35 (close)
- Shanghai – Composite: DOWN 1.2 percent at 2,465.29 (close)
- Tokyo – Nikkei 225: Closed for public holiday
- London – FTSE 100: DOWN 1.6 percent at 6,620.32
- Euro/dollar: DOWN at $1.1480 from $1.1460 at 2120 GMT on Monday
- Dollar/yen: DOWN at 109.28 yen from 109.58 yen
- Pound/dollar: DOWN at $1.2755 from $1.2752
- Oil – West Texas Intermediate: DOWN 49 cents at $44.92 per barrel
- Oil – Brent Crude: DOWN 58 cents at $53.22 per barrel
- New York – Dow: UP 1.2 percent at 23,327.46 (close)