Weak economic data out of China and Europe overnight prompted a selloff in equities in Asia and across the pond; and U.S. stock futures are sharply lower this morning by more than 300 points as I type out this short note. December factory activity in China contracted – just barely, but down — for the first time in 19 months. The Caixin/Markit Manufacturing Purchasing Manager’s Index (PMI), fell to 49.7 in December from 50.2 in November. Any number above 50 indicates economic growth, while a number less than 50 denotes contraction. A Reuters poll of leading economists expected a reading of 50.1, so the number was weaker than expected. While the manufacturing number was only slightly lower than 50, signaling contraction, the data is raising concerns not only about China’s external/global revenue and spending; but, domestically as well. New orders, and new export orders both shrank in December, leading to some concerns about the entire China economic story coming into 2019. Indices across Asia were down between one and about 2.5 percent.
“This showed external demand remained subdued due to the trade frictions between China and the U.S., while [China] domestic demand weakened more notably,” wrote Zhengsheng Zhong, Director of Macroeconomic Analysis at CBEM Group, a subsidiary of Caixin. “It’s looking increasingly likely that the Chinese economy may come under greater downward pressure.”
In Europe, the Asia weakness filtered over across the pond, although the indices were off mostly less than one percent. Growth momentum in Europe also showed weakness, with the release of the Eurozone PMI. Data showed a broad-based economic slowdown across the EU.
So, it is shaping up as a day in the red to open up 2019; but, this kind of data could well cause the Fed to halt rate increases this year. Most of the big investment firms are betting the Fed is ‘one and done,’ in 2019, and some even believe there is a 50/50 chance that the Fed actually cuts rates. Progress on the U.S./China trade dispute would significantly improve the economic outlook and boost equities. Happy New Year to all of you. RCP, fortunascorner.com
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