Global stocks plunged on the first day of trading in the new year. Fresh fears about a slowdown in China’s economy precipitated concerns about global growth.

 

 

 

 

United States

 

US stocks followed those of Asia and Europe and tumbled Monday. The sell-off started in Asia triggered by weak manufacturing data for China and continued weakness in the country’s currency. The turmoil spread to Europe and then to the United States, where the escalation of Middle East tensions added to market jitters. The Dow Jones industrials tumbled 1.6 percent, the S&P retreated 1.5 percent and the Nasdaq lost 2.1 percent.

Global investors have been watching China warily for months, as they grew increasingly concerned about the country’s economic outlook. Last summer, a slump in the country’s once high flying market and a surprise devaluation of the Chinese renminbi set off turbulence around the world. The same themes appear to be carrying over into 2016.

As the Chinese economy pulls back, the country’s companies and individuals have been looking for opportunities overseas, leading to outflows that have weighed on the renminbi. The situation is complicated by the United States Federal Reserve’s move to raise interest rates, which makes it more attractive to keep money in dollars. While the People’s Bank of China has signaled it is willing to allow the currency to weaken, it must also control the slide, otherwise it risks spooking the markets. On Monday, the central bank set the renminbi at its lowest level since May 2011.

In economic news, the December ISM manufacturing index contracted for a second month. November construction spending declined 0.4 percent. The data were revised due to a rare processing error by the Census Bureau.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$12.25 to US$1,082.25. Copper futures were down 2.5 percent to US$2.08. WTI spot crude was down 29 US cents to US$36.75. Dated Brent spot crude was down 2 US cents to US$37.26. The US dollar was up against the euro, pound, Swiss franc and the Canadian and Australian dollars. However, it declined against the yen. The Dollar Index was up 0.4 percent. The yield on US Treasury 30 year bond was down 4 basis points to 2.98 percent while the yield on the 10 year note slipped 3 basis points to 2.24 percent.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

 

European markets sank sharply on the first trading day of the New Year due to global economic concerns. Weak Chinese manufacturing data sent the Chinese market plunging 6.9 percent. Trading was halted for the rest of the trading session as a newly launched circuit breaker mechanism kicked in for the first time. The FTSE was down 2.4 percent, the CAC declined 2.5 percent, the DAX plunged 4.3 percent and the SMI was 1.8 percent lower.

Crude oil prices were also in focus. The rift between Iran and Saudi Arabia raised concerns that the disagreement might disrupt supplies from the Middle East. Saudi Arabia cut diplomatic ties with fellow OPEC member Iran on Sunday after its embassy in Tehran was attacked. Iranians were protesting the Saudi execution of a prominent Shiite Muslim cleric.

RWE and E.ON dropped. Automakers BMW, Daimler, Volkswagen, Peugeot and Renault tumbled. Deutsche Bank and Commerzbank lost retreated. In Paris, Alcatel-Lucent declined after French authorities granted approval to its merger with Nokia. LVMH and Kering were lower. In London, Shire declined on rumors that it is close to a deal to purchase US company Baxalta. Mining stocks were under pressure with Anglo American, Glencore, Antofagasta and BHP Billiton all lower on the day. However, gold stocks advanced on safe-haven appeal. Randgold Resources and Fresnillo gained.

Eurozone manufacturing activity expanded at the fastest pace since April 2014. The final manufacturing purchasing managers' index climbed to 53.2 in December from 52.8 in November. The UK December manufacturing sector growth eased unexpectedly thanks to a further slowdown in growth of output and new orders. The manufacturing PMI slipped to 51.9 from 52.5 in November.

 

 

 

 

 

 

 

 

Asia Pacific

 

 

Asian stocks fell across the board on Monday after Chinese factory data disappointed investors and China's central bank set the reference rate for yuan at a more than 4-1/2-year low. While oil and gold prices inched higher on increased geopolitical tensions between Saudi Arabia and Iran, risk-off sentiment took its toll on equity markets.

The Shanghai Composite dropped 6.9 percent to its lowest level in nearly three months sparking a trading halt for the rest of the day. It was the first time China used a newly launched circuit breaker mechanism to curb market volatility. The Hang Seng retreated 2.7 percent. China's manufacturing sector continued to contract in December on weak orders and a renewed fall in output, reflecting the complexity in achieving its ambitious growth target for 2015. The December purchasing managers' index slid unexpectedly to 48.2 from 48.6 in November. The ‘official’ CFLP manufacturing PMI was also below the 50 breakeven point at 49.7.

Regional manufacturing surveys painted a mixed picture, with manufacturing activity in Australia, Japan, South Korea and Taiwan expanding while India's manufacturing contracted for the first time in over two years. South Korea's Nikkei manufacturing PMI came in above 50 for the first time since February.

The Nikkei tumbled 3.1 percent. Investor sentiment was soured by below-par manufacturing data from China and a firmer yen. Exporters including Panasonic, Toyota, Canon, Fanuc and Honda Motor retreated as the yen hit its highest level against the US dollar since October. ANA Holdings tumbled on a Nikkei report it will buy three Airbus A380s to expand international service amid a peaking market for domestic flights. Inpex and JX Holdings rallied. Takata Corp soared on reports that Japanese automakers may extend financial assistance to the embattled company.

The S&P/ASX and the All Ordinaries lost 0.5 percent and 0.4 percent respectively even though energy stocks posted widespread gains on the back of higher oil prices after Saudi Arabia cut diplomatic ties with Iran following the execution of a prominent Shiite cleric. The Kospi tumbled 2.2 percent thanks to China's market drop, a weakening yuan and concerns over fourth-quarter corporate earnings fueled a negative mood. Foreigners sold shares worth a net 157 billion won, extending their selling streak for a 21st consecutive session according to preliminary data.

 

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. 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.

 

Looking forward

 

 

Germany posts December unemployment data and the Eurozone reports flash December harmonized index of consumer prices. The US releases motor vehicle sales.