New year, new problems. At least that appears to be the case for the markets. After glorious record highs in 2018, the year we left behind turned into an excruciatingly volatile roller coaster towards its closing chapter for the financial markets. The pains though seem not to have ended there.
Early evidence suggests a potentially rockier year awaits all as investors still look forward to seeing the Sino-US trade war resolved, and resolved soon.
Only if the trade war currently in pause thanks to a ceasefire between President Donald Trump and Xi Jinping was the sole issue.
The fear is now stemming from data signaling poor figures in Chinese production.
China’s Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 49.7 in December from 50.2 in November. The weaker-than-expected number was the proof of a contraction for the first time in 19 months in the world’s number 2 economy, adding to concerns over an economic slowdown in global terms.
In the index released by the private media company Caixin, figures above 50 mean growth while those below indicate contraction territory.
New manufacturing orders also dropped for the first time in two and a half years, as Chinese small and mid-sized companies reported shrinking demand domestically and internationally despite price discounts. Their export orders decreased for the ninth month. The blame is put on the trade tensions with the US.
China’s National Bureau of Statistics last week showed that industrial profits saw a decrease of 1.8% to 594.8 billion yuan ($86.33 billion) in November compared to the same period in the year before. That was recorded as the first decline in industrial profits since December 2015.
Bad news travels fast. First reactions came from Asia as the contagion spread to America and Europe.
On Wednesday, the Shanghai Composite Index fell by at least 1.15 percent while Hong Kong’s Hang Seng dropped by 2.77 percent. The Australian Securities Exchange saw a fall of 1.71 percent as Japanese markets remained intact because they were closed for holidays.
On the first trading day of the new year, US stocks that briefly recovered from the bear territory it entered during the Christmas once again witnessed steep falls. At its opening session, Dow Jones Industrial Average futures index fell sharply by at least 400 points due to fears compounded with weak economic data from China that has certainly killed off risk appetite around the world. The S&P 500 and Nasdaq 100 also saw weak openings.
Despite the optimistic tone voiced by Xi and Trump and a culturally highly symbolic move by Beijing to allow rice imports from the US for the first time ever in history, markets are at least for now not buying prospects of a breakthrough in trade negotiations between the US and China.
The New York Times reported that Trump’s Trade Representative Robert Lighthizer has told associates that he wanted to prevent President from accepting “empty promises” from China on the trade front. The report also noted that Lighthizer has warned Trump that additional tariffs may be needed to get meaningful concessions from the Chinese.