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On 21 February 2019 - Global stocks subdued as economic data point to further weakness

Anne D Picker

Anne D Picker - Econoday

US campaign against Huawei continues as Chinese authorities reportedly block Australian coal imports.

US markets

US stocks fell Thursday with economic data, both at home and abroad, indicating weaker growth. Global PMI surveys, in particular, have shown a further slowdown in the manufacturing sectors of major countries, heightening concerns about the impact of trade tensions. The Dow, the S&P, and the Nasdaq all closed down 0.4 percent on the day.

The US flash PMI survey for February showed conditions improved in the services sector but weakened in the manufacturing sector. Although the manufacturing sector is smaller, its exposure to global demand generally makes it a better leading indicator for general economic conditions and so may heighten concerns among Federal Reserve officials about a slowdown in growth. The durable goods orders report for December also showed that business investment was notably weaker at the end of last year, despite a solid increase in the headline number. Adding to these signs of a slowdown in the manufacturing sector, the Philadelphia Fed’s survey of regional manufacturers showed a sharp decline in its headline index for February, in line with other regional surveys since late last year. Conditions in the broader labor market, however, remain robust, with jobless claims data for the February 16 week pointing to a strong employment report for the month.     

US-China trade talks continued in Washington Thursday, with details about the terms of a likely agreement starting to emerge. Intellectual property protection and market access remain the key issues, with US negotiators also seeking to reduce non-tariff barriers and limit competitive devaluations of the Chinese currency. US tariffs on Chinese imports are scheduled to increase from 10 percent to 25 percent at the start of March unless a deal can be reached, though this deadline may be extended.

US Secretary of State Mike Pompeo reiterated Thursday his concerns about potential security risks associated with technology provided by Chinese firm Huawei, warning that the US would not share intelligence information with allies that use such technology. Although some US allies have already taken steps to limit its use, several countries have adopted or are considering the use of Huawei technology for 5G networks, with the Chinese government strongly objecting to US concerns. 

These data reflect observations at 4:00 PM US ET. Gold dropped US$15.57 to US$1,326.00 while dated Brent spot crude fell US$0.13 to US$66.99. The US dollar gained 1.0 percent against the Australian dollar Thursday but moves against other major currencies were limited. The yield on the US Treasury 30 year bond rose 5 basis points to 3.05 percent while the 10 year note advanced 4 basis points to 2.68 percent.

European markets

European markets were mixed Thursday, with regional data generally indicating subdued economic conditions have extended into the new year. The FTSE fell 0.8 percent, the DAX closed up 0.2 percent, and the CAC was unchanged on the day. Regional banks underperformed after reports that Swedish and Estonian authorities are investigating money laundering allegations associated with Swedbank and Danske Bank. Barclays also fell on the day after reporting weaker-than-expected annual profits, with the bank also announcing it will make provisions for Brexit-associated losses.

Flash PMI surveys for February showed an increase in the headline index for the Eurozone, Germany and France, though in each case the index still suggests that conditions remain subdued. In Germany, the increase in the headline index was driven by the services sector, with the survey showing that the manufacturing sector contracted for the first time since April 2013. The French survey showed a smaller contraction in the services sector and only a modest improvement in manufacturing conditions. There was also a marked divergence between the two sectors in the Eurozone survey, with a solid improvement in the services sector offset by a shift into contraction for the manufacturing sector. 

Revised inflation data confirmed Germany’s headline inflation rate fell from 1.6 percent in December to 1.4 percent in January, with underlying inflation trending sideways. French headline inflation was also left unrevised at 1.2 percent in January, down from 1.6 percent in December, while Italian headline inflation fell from 1.2 percent in December to 0.9 percent in January. 

Overall, the PMI surveys and inflation releases point to weak growth and inflation across the Eurozone region at the start of the year and boost the chances that the European Central Bank will downgrade its economic forecasts at its next policy meeting early March. The minutes for the ECB’s January policy meeting, also published Thursday, showed that board members considered downside risks had built, mainly reflecting factors such as global trade tensions and Brexit uncertainty, while the slow pass-through from wages to consumer prices was also a focus during the discussion. With subsequent data likely heightening these concerns, the chances that further policy accommodation may be announced at next month’s meeting seem to be increasing.

Asia Pacific Markets

Asian markets were missed Thursday, with some regional indices making moderate gains, others unchanged on the day, and the Shanghai composite index closing down 0.3 percent. Australia’s All Ordinaries index was the strongest performer, gaining 0.6 percent on the day after strong labour market data. 

The Australian dollar sold off sharply after the close of local trading Thursday on news that Chinese authorities have banned imports of Australian coal at five ports, with imports into other ports also said to be subject to lengthy delays.  A spokesman for the Chinese customs administration cited “environmental protection” as the reason for this action, but it follows recent tensions between the Chinese and Australian governments. The Australian government last year banned Chinese firms Huawei and ZTE from supplying equipment for its new 5G network, citing security concerns, and recent comments from the Australian government about a cybersecurity breach have been widely interpreted as implying that Chinese agents were involved.

The flash PMI for the Japanese manufacturing sector showed activity has contracted in February for the first time since the first half of 2016. The survey’s measures of output, new orders, business confidence, and employment have all weakened, with input costs and selling prices also reported to have risen at a slower pace. Official data also showed conditions weakened in the services, manufacturing, and construction sectors in December.

Australian labour market data showed a strong increase in employment in January, with the unemployment rate and participation rate also indicating that conditions remain robust. This is line with the assessment of officials at the Reserve Bank of Australia that labour market tightness will drive a gradual pick-up in both wages growth and consumer price inflation.

Looking forward

Japanese inflation data and Chinese house price data will be published shortly. German GDP data and the Ifo survey are the highlights of the European data calendar Friday. No major US data releases are scheduled for Friday but several senior Fed officials are set to speak, including Vice Chairman Richard Clarida.

Global Stock Markets

 

Index

Feb 21 2019

Daily Change

% Change Daily

North America

United States

Dow

25850.63

-103.81

-0.4

 

NASDAQ

7459.71

-29.36

-0.4

 

S&P 500

2774.88

-9.82

-0.4

Canada

S&P/TSX Comp

16000.86

-30.38

-0.2

Europe

UK

FTSE 100

7167.39

-61.23

-0.8

France

CAC

5196.11

0.16

0.0

Germany

XETRA DAX

11423.28

21.31

0.2

Italy

MIB

20209.72

-94.49

-0.5

Spain

Ibex 35

9191.20

10.10

0.1

Sweden

OMX Stockholm 30

1572.65

-15.96

-1.0

Switzerland

SMI

9333.57

17.94

0.2

Asia/Pacific

Australia

All Ordinaries

6214.62

38.86

0.6

Japan

Nikkei 225

21464.23

32.74

0.2

 

Topix

1613.50

0.03

0.0

Hong Kong

Hang Seng

28629.92

115.87

0.4

S. Korea

Kospi

2228.66

-1.10

0.0

Singapore

STI

3277.91

-0.47

0.0

China

Shanghai Comp

2751.80

-9.42

-0.3

Taiwan

TAIEX

10319.53

47.07

0.5

India

Sensex 30

35898.35

142.09

0.4

Source: Haver Analytics

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.