Stocks recover losses but economic concerns linger

Fears about global growth, trade wars, rising US interest rates and political instability roll over into the new year

After  the worst year since the financial crisis in 2018, markets started 2019 tentatively. Photograph: Michael Nagle/Bloomberg

After the worst year since the financial crisis in 2018, markets started 2019 tentatively. Photograph: Michael Nagle/Bloomberg

 

Global stocks recovered much of their losses on Wednesday as investors took advantage of cheaper shares to ring in the new year, but lingering economic concerns from weak Chinese and European data boosted safe-haven assets including benchmark US treasury notes and the Japanese yen.

Data showed Chinese factory activity contracting for the first time in more than two years. The Purchasing Managers’ Index (PMI) for the euro zone also reached its lowest level since February 2016, and France’s PMI fell in December for the first time in two years. Concerns about the flagging global economy contributed to US stocks posting a loss in 2018 for the first time in a decade.

The US benchmark S&P 500 stock index dropped as much as 1.6 per cent on the data but moved higher to fluctuate between positive and negative territory as the session continued.

Bank and energy shares, which have been especially hard-hit in recent sell-offs, were among the biggest gainers. Energy shares also benefited from a jump in oil prices, which climbed as US stocks recovered.

“We’re at levels that are really, really oversold, and that’s where bounces really come from,” said Michael Antonelli, managing director of institutional sales trading at Robert W Baird in Milwaukee.

“Slowing China growth isn’t anything new, and that’s what led to today’s bounce.”

Still, MSCI’s gauge of stocks around the globe dropped 0.45 per cent. Asian markets as well as the pan-European Stoxx 600 closed lower. In Dublin, the Iseq finished 0.19 per cent higher on light trade.

11-month low

Reflecting lingering investor nervousness, yields on US 10-year Treasury notes fell, earlier hitting an 11-month low. However, the boost in oil prices pushed up yields on short-dated maturities, flattening the yield curve . An inverted yield curve is widely seen as an indicator of a future recession.

“The yield curve is signalling that something is wrong,” said Matt Miskin, market strategist at John Hancock Investments in Boston.

“The underlying economic data continues to suggest a slowdown.”

The safe-haven Japanese yen also rose to reach a seven-month high against the dollar. Yet the dollar index, which measures the US currency against a basket of six other currencies, advanced 0.7 per cent as the euro and sterling fell.

“The overall theme that’s been driving the market down is concerns about future economic growth and future earnings growth,” said Peter Jankovskis, co-chief investment officer at Oakbrook Investments. “The concern is that the tariff action, while it hasn’t had a significant impact to date here in the US, is going to start weighing on things. And when we get these economic reports from overseas, principally from China, that provides some evidence that, yeah, it is starting to bite, and that makes people nervous.” – Reuters/Bloomberg