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On 2 December 2019 - US, Europe drop on trade worry; Asia up on Asia PMI data

Anne D Picker

Anne D Picker - Econoday

Markets shaken by Trump’s latest tariff surprise, plus weak US data.

US markets

US equities slipped Monday on weak US manufacturing and construction reports and after President Trump reimposed tariffs on Brazil and Argentina. The Dow industrials fell 1.0 percent, the S&P 500 declined 0.9 percent, and the NASDAQ was off 1.1 percent.

Trump caught markets off guard by tweeting that he was restoring tariffs on steel and aluminum imports from Brazil and Argentina to retaliate for his contention that the two countries have been pushing down their currencies against the dollar. Trump’s announcement aggravated concerns that the US and China may not reach an expected trade pact, and that Trump could take other unpredictable steps that could destabilize the global economy and unsettle markets, including stepping up trade disputes with Europe. Trump also renewed his attack on the Federal Reserve, and called on the central bank to depreciate the dollar more broadly. Later, Commerce Secretary Wilbur Ross added to the negative picture by warning that the US would proceed with tariff increases on China on Dec. 15 if there is no trade deal by then. US-China trade talks have stalled over China’s demand that the US scale back tariffs, among other issues.

On the positive side, preliminary reports from Adobe Analytics suggested a strong weekend start to the US holiday shopping season, which suggested that a solid jobs market continues to underpin consumption, to offset the ongoing decline in the manufacturing and tradable-goods sector. Among market sectors, tech stocks lagged with communications services hit. Online retailers were weak, including Amazon, off 1.1 percent, despite the positive holiday sales figures.

In US economic news, at a lower-than-expected 48.1 in November, ISM's manufacturing sample did not confirm improvement seen in Markit's manufacturing PMI or last week's durable goods report. Contraction in new orders deepened by nearly 2 points to 47.2 with new export orders, in sharp contrast to Markit's report released earlier in the day, falling into tangible contraction, down 2.5 points to 47.9. In a separate report, construction spending fell 0.8 percent in October which was well below Econoday's consensus range and included a downward revision to September, from a 0.5 percent initial gain to a 0.3 percent decline. Most categories were weak with the one very welcome exception of single-family homes where spending was up 1.6 percent on top of gains of 1.3 and 1.2 percent in the prior two months.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$1.50 to US$60.93, while gold fell by US$1.30 to US$1,469.10. The US dollar declined against most major currencies. The US Treasury 30-year bond yield rose 6 basis points to 2.27 percent while the 10-year note yield rose 4 basis points to 1.82 percent. Short-end Treasury yields fell in a flight from risk to steepen the yield curve.

European markets

Most major European equities indexes dropped Monday after President Trump tweeted that he would resume tariffs on steel and aluminum imports from Brazil and Argentina. The Europe-wide STOXX 600 fell 1.6 percent, the German DAX dropped 2.1 percent, the French CAC was off 2.0 percent, and the UK FTSE-100 slipped 0.8 percent.

Markets were higher initially on better results in European economic data, but reversed to drop sharply on the latest Trump surprise. Trump said he was restoring the tariffs to retaliate against the two countries, which are major agricultural exporters, for causing their currencies to depreciate. He also called on the Fed to cut rates to weaken the dollar broadly. The moves renewed concern about Trump’s unpredictability and the prospect for worsening in trade relations with China and US allies.

The selloff affected all sectors, but the worst performers were technology, autos, personal & household goods, health care, and utilities. Basic resources and oil & gas held up the best, as oil prices rose on reports of OPEC countries planning significant production cuts. European markets were also hurt by a World Trade Organization ruling allowing US tariffs to continue on Europe’s Airbus Industries, which was off 2.7 percent.

In economic news, UK final November PMI weighed in at 48.9, a useful improvement versus its 48.3 flash estimate but still well short of October's final 49.6 and the 50-expansion mark. Separately, the German final manufacturing PMI for November was 44.1, up from its 43.8 flash estimate and above October's final 42.1. However, it was still well short of the 50-expansion threshold.

Asia Pacific markets

Most major Asian markets advanced Monday after PMI survey data indicated that conditions have improved in the regional manufacturing sector, though concerns about prospects for US-China trade talks and another weekend of civil unrest in Hong Kong also weighed on investor sentiment. Japanese markets outperformed, with the Nikkei and Topix indices closing up 1.0 percent and 0.9 percent respectively, while Australia’s All Ordinaries index rose 0.3 percent. Hong Kong’s Hang Seng index closed up 0.4 percent while the Shanghai Composite index closed the day fractionally higher.

PMI survey reports published over the weekend and on Monday showed improved though still subdued conditions in the Chinese, Japanese and Indian manufacturing sectors in November. The Markit Manufacturing PMI headline index for China advanced slightly from 51.7 in October to 51.8 in November, the fifth consecutive increase and its highest level since December 2016. The official CFLP Manufacturing PMI - released over the weekend - also showed an increase in its headline index, from 49.3 in October to 50.2 in November. The Markit Manufacturing PMI headline index for Japan rose to 48.9 in November, just above the flash estimate and consensus estimate of 48.6 and confirming an increase from 48.4 in October, while the equivalent index for India increased from a two-year low of 50.6 in October to 51.2 in November.

Looking forward

On Tuesday in Asia/Pacific, the Reserve Bank of Australia policy announcement is scheduled. In Europe, Swiss CPI, UK PMI construction, and Eurozone PPI reports are due. In the US, Redbook's same-store retail report will offer additional data on the Black Friday week and the opening of the holiday shopping season.

Global stock markets

 

Index

2 Dec 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

27783.04

-268.37

-1.0

 

NASDAQ

8567.99

-97.48

-1.1

 

S&P 500

3113.87

-27.11

-0.9

Canada

S&P/TSX Comp

16981.47

-58.73

-0.3

Europe

 

 

 

 

UK

FTSE 100

7285.94

-60.59

-0.8

France

CAC

5786.74

-118.43

-2.0

Germany

XETRA DAX

12964.68

-271.70

-2.1

Italy

MIB

22728.59

-530.74

-2.3

Spain

Ibex 35

9156.3

-195.70

-2.1

Sweden

OMX Stockholm 30

1706.82

-23.43

-1.4

Switzerland

SMI

10348.44

-144.80

-1.4

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6965.3

17.32

0.2

Japan

Nikkei 225

23529.5

235.59

1.0

 

Topix

1714.49

15.13

0.9

Hong Kong

Hang Seng

26444.72

98.23

0.4

S. Korea

Kospi

2091.92

3.96

0.2

Singapore

STI

3187.97

-5.95

-0.2

China

Shanghai Comp

2875.81

3.83

0.1

Taiwan

TAIEX

11502.83

13.26

0.1

India

Sensex 30

40802.17

8.36

0.0

Note: all releases are listed in local time.

Important Information

Econoday Inc. is a US company that provides financial commentary and indicators to industry professionals. All information provided and views expressed are those of Econoday. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Past performance is not a reliable indicator of future results. The value of investments can go down as well as up and investors may not get back the amount invested.