Stock markets across the world started the new year under heavy pressure as deepening concern about a global economic slowdown spooked investors, still shaken by the worst year for equities in a decade in 2018.
Wall Street followed European and Asian markets lower after economic data showed a contraction for China’s manufacturing sector for the first time in 19 months.
“We believe that the data reflect that not only has the trade war damaged growth in the export sector. It has also hurt export-related supply chain companies and in turn, domestic demand,” said Iris Pang, an economist at ING.
“If domestic demand is not supported by fiscal stimulus quickly, then further weakening will pose a risk to job security. That could create a vicious downwards cycle.”
The Nasdaq Composite fell 1.7 per cent, with its dominant technology stocks falling at the start of the first session of 2019. The S&P 500 was down 1.5 per cent.
As well the weak manufacturing figures in Asia and parts of Europe, investors have returned from the new year break faced with renewed threat from the trade war between the US and China, the continued US federal government shutdown — now in place for almost two weeks — and the prospect of a disorderly Brexit.
Central banks are also tightening monetary policy, ending the era of economic stimulus dating back to the financial crisis and causing further worries over the fate of global markets this year.
The combination has meant little respite from the bruising end to last year, with global stocks ending 2018 with their worst December performance since the 1931 depression.
In Europe, a broad retreat took the region-wide Stoxx 600 down by as much as 1.7 per cent, setting it back toward the two-year lows it touched in December. The index pared its losses in afternoon trade, although it remained 0.6 per cent lower for the session. The FTSE 100 was down 0.8 per cent lower. The Hang Seng closed down 2.8 per cent, its biggest single-session fall since October. On the mainland, the CSI 300 slipped 1.4 per cent.
Haven assets rose, lifting gold, taking Japan’s yen to its strongest level in three months and pushing German Bund yields sharply lower.
“Evidence of the damage of the trade war is increasing,” said Karen Ward, chief market strategist for Europe, Middle East and Africa at JPMorgan Asset Management.
“Investors are still not convinced there are meaningful grounds for compromise between Washington and Beijing. The market now wants to know that there will be a concrete agreement which can stop the downturn in business sentiment before firms start to materially cut back on investment and hiring.”
German Bund yields fell sharply as investors moved into the debt, seen as one of the safest assets in Europe. The benchmark 10-year yield fell 9.4 basis points to 0.152 per cent, setting it on course for the biggest single session rally for the paper since September 2016. Haven demand for it increased even as European stocks bounced off their lowest levels of the day.
The yen and gold hit their strongest levels in six months. Japan’s currency was 0.5 per cent stronger at ¥109.2 per dollar, while the precious metal added 0.2 per cent at $1,284 an ounce, a price last touched in June.
Australia’s dollar fell 0.5 per cent to $0.7016. The currency is sensitive to the economic outlook for China, which is the main market for the metals produced by the country’s dominant mining sector.
The euro and sterling both fell by 0.8 per cent, helping to lift the dollar index by 0.6 per cent, as the haven appeal of the world’s reserve currency was in play, even as concern about the US government shutdown lingered.
“FX is a battle between a host of unloved currencies to see which is worst,” said Kit Juckes at Société Générale. “This year, the theme is economic slowdown.”
