Opening Bell: Futures Tumble On Global Growth Fears; Gold Jumps

Key Events

In a signal that holiday escapism is over and last year’s rough finish may extend into the new year, global equities and futures on the S&P 500, Dow and NASDAQ 100 all tumbled significantly this morning after fresh data from China confirmed signs of an economic slowdown in the world's second largest economy.

US contracts had gained ground earlier after President Donald Trump invited Congressional leaders to negotiate an end to the ongoing government shutdown over funding for the Mexican border wall. However, a contraction in Chinese manufacturing activity offset optimism for domestic political stability, suggesting that the US-China trade dispute is taking a toll on the real economy, contrary to what the positive rhetoric from both countries recently seemed to convey.

The Caixin private survey, which slipped below the 50.00 mark for the first time in 19 months due to trade war headwinds and lower domestic demand, follows China’s National Bureau of Statistics official PMI index on Monday, which also dropped into contraction territory for the first time since July 2016.

Mounting evidence of an economic slowdown in China exacerbates concerns of a global domino effect. Investors may look for further clues in the euro-area and UK PMI readings coming out later today, as both regions have posted underwhelming results in recent times.

Meanwhile, the STOXX Europe 600 ended a two-day rally, with every sector in the red. Mining and energy shares, both cyclical sectors, led the declines.

Global Financial Affairs

On Monday, a mildly higher close on thin trading ahead of the New Year holiday in the US fell short of lifting the market significantly. Stocks finished their worst year of the current bull market, as well as their most disastrous December loss since 1931. The S&P 500 slid 9.2 percent for the year—the most in nearly a decade.

In truth, 2018 was a downbeat year for equities worldwide. The STOXX 600 tumbled 13 percent—the most since 2008.

The yield on 10-year Treasurys keeps edging lower after hitting the lowest level since February at 2.68 percent. Technically, it reversed trends.

The Dollar Index climbed slightly more than 0.1 percent, rebounding from its lowest level since October after a five-day decline. The dollar's recent pattern has proven elusive, as the reserve currency shifts from a risk asset status to a safe haven role. We have been writing repeatedly about an ongoing global effort to reduce the greenback as a global reserve and disconnect it from commodity prices. Technically, the USD rebounded from the neckline of a top.

Gold is advancing for the fourth straight trading day, even with the dollar also in green territory. Will demand manage to outpace supply at the resistance of the previous May support, from where the price dropped 9.6 percent?

Oil wiped out two days of gains this morning, falling below $45, as it continues to develop a rising flag, bearish in a downtrend. WTI crude was the first asset to take a hit from pessimism over global growth as it slumped to its first annual loss since 2015, completing a reversal that saw it drop from a four-year high set just three months ago.

Up Ahead

• The US ISM manufacturing PMI is due on Thursday.

• Canadian Employment Rate for December is released Friday.

• The US December jobs report is due on Friday.
• Fed Chair Powell will speak alongside predecessors Janet Yellen and Ben Bernanke at the annual meeting of the American Economic Association on Friday. Atlanta Fed President Raphael Bostic will also join a panel on long-run macroeconomic performance. Critics are warning the central bank is out of sync with forward-looking markets.

Market Moves

Stocks

• Canada’s S&P/TSX Composite closed up 0.71 percent on Dec. 31.

• Futures on the S&P 500 tumbled 1.3 percent, to the lowest level in a week on the largest decrease in more than a week.
• The UK’s FTSE 100 dropped 1.4 percent.
• Germany’s DAX surged 1.7 percent, reaching the highest level in more than a week on the first advance in a week and the biggest jump in a month.
• The MSCI Asia Pacific Index fell 1 percent, hitting the lowest level in a week with the first retreat in more than a week.
• The MSCI Emerging Market Index edged 1.5 percent lower, reaching the lowest level in a week on the first retreat in a week and the biggest tumble in more than three weeks.

Currencies

• The Canadian loonie was down 0.11 percent against the U.S. greenback early Wednesday, trading at 0.7323.

• The euro rose less than 0.05 percent to $1.1469, the strongest level in 10 weeks.
• The British pound climbed 0.1 percent to $1.2753.
• The Japanese yen gained 0.4 percent to 109.27 per dollar, the strongest level in seven months.

Bonds

• Canada’s 10-year yield was down early Wednesday at 1.878, a 4.43-percent decrease.

• The yield on 10-year Treasuries rose less than one basis point to 2.69 percent, the largest advance in a week.
• Germany’s 10-year yield slipped three basis points to 0.21 percent, the lowest level in more than 20 months on the biggest dip in almost three weeks.
• Britain’s 10-year yield fell three basis points to 1.25 percent, the lowest in almost three weeks.
• The spread of Italy’s 10-year bonds over Germany’s rose four basis points to 2.5383 percentage points to the biggest premium in a week.

Commodities

• West Texas Intermediate crude dropped 1.2 percent to $44.88 a barrel.
• Gold gained 0.7 percent to $1,285.69 an ounce, the highest in almost seven months.