Market comment 2019

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A survey of American manufacturers showed the slowest growth in December in 15 months, reflecting a dip in confidence among executives about how their businesses will perform in the new year. IHS Markit said its manufacturing PMI slipped to 53.8 in December from an initial reading of 53.9, and it was down from 55.3 in the prior month. Any number above 50 indicates more companies are growing instead of shrinking, but the index has now fallen to its lowest point since September 2017. That could be an ominous sign for the economy if the loss of confidence continues to spread. The level of optimism among senior executives was at the lowest ebb in more than two years.

U.S. manufacturers expand at slowest pace in 15 months as business confidence wanes, IHS Markit finds - MarketWatch

The gloomy readings largely dovetailed with an official survey on Monday which showed growing strains on China’s manufacturing sector, a key source of jobs. The findings reinforce views the economy is losing more steam. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for December, released on Wednesday, fell to 49.7 from 50.2 in November, marking the first contraction since May 2017. Economists polled by Reuters had forecast only a marginal dip from November to 50.1, just above the neutral 50-mark dividing expansion from contraction on a monthly basis.

China December factory activity shrinks for first time in 19 months: Caixin PMI | Reuters

The IHS Markit Eurozone Manufacturing PMI dropped to 51.4 in December 2018 from 51.8 in the previous month, in line with market expectations and a preliminary estimate. The reading pointed to the slowest expansion in factory activity since February 2016, as new work declined for the third consecutive month, the greatest rate in over four years amid ongoing challenges in the auto sector and wider political and economic instabilities. Also, backlogs of work decreased for the fourth straight month and to the steepest rate since November of 2014.

Euro Area Manufacturing PMI | 2019 | Data | Chart | Calendar | Forecast

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We will enter 2019 with Global Liquidity tumbling at its fastest rate since the 2007/08 Financial Crisis. Yet again investors are learning the hard lesson that low nominal interest rates are a dangerously ambiguous guide to monetary conditions. Already risk asset markets are skidding, in response to tight liquidity, and economic slowdown and probable recessions lie ahead. The future looks especially bad for those economies, firms and institutions that have spent the last decade kicking the proverbial debt can down the road. High debt levels always demand high liquidity to facilitate re-financing. Systemic risks rise if debt cannot be re-scheduled.

Why Has Global Liquidity Crashed Again? | Zero Hedge

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German industrial production fell by -1.9% in November. Year over year, production hit a low of -4.6% — the biggest trough since the 2008 crisis. Germany's exports fell -0.4% month over month in November, the government reported today.

Germany probably just went into a recession - Business Insider

A strong rally in stock prices on Friday is giving bullish investors renewed hopes of future gains, but other big daily advances recorded in recent months frequently have been followed by declines to new lows. Meanwhile, analysts at Bank of America Merrill Lynch warn that plunging stock prices, spikes in volatility, and evaporating liquidity in the securities markets may set off a general economic contraction. “We think this [volatility] can no longer be dismissed as noise on the grounds of illiquidity or machine trading alone,” BofAML writes in a recent report quoted by Barron's.

How The Sell-Off Wave May Kill The Economic Expansion

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We are closer to an economic hard landing in China than the consensus believes, and the price of industrial commodities, crude oil and Apple’s stock will be better indicators of this than many economic statistics released by the Chinese government.

China’s hard landing? Watch prices on these 3 things, not economic data - MarketWatch

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At some stage, this is going to bite..

The federal government shutdown is hurting the US economy, most economists agree. The White House thinks that the pain is even worse than originally thought. A White House official told INSIDER that after a change to the internal model, the Trump administration now estimates the shutdown is taking 0.13 percentage points off of quarterly GDP every week. The model change incorporated the negative effects for federal contractors.

Government shutdown: White House increases GDP, economic pain estimate - Business Insider

Chinese foreign direct investment into the U.S. plummeted for a second year in a row, according to new data. In 2018, Chinese FDI in the United States fell to just $4.8 billion — a massive decline from $29 billion in 2017 and $46 billion in 2016, according to independent researcher the Rhodium Group.

Chinese foreign direct investment to the US falls in 2018: Data

As the longest government shutdown in American history lurches toward its fifth week, a grim but growing consensus has begun to emerge on Capitol Hill: There may be no way out of this mess until something disastrous happens. This is, of course, not a sentiment lawmakers are eager to share on the record. But in interviews this week with congressional staffers on both sides of the aisle (whom I granted anonymity in exchange for candor), I heard the same morbid idea expressed again and again. The basic theory—explained to me between weary sighs and defeated shrugs—goes like this: Washington is at an impasse that looks increasingly unbreakable. President Donald Trump is dug in; so is Speaker Nancy Pelosi. Democrats have public opinion on their side, but the president is focused on his conservative base. For a deal to shake loose in this environment, it may require a failure of government so dramatic, so shocking, as to galvanize public outrage and force the two parties back to the negotiating table.

Capitol Hill Aides Wait for a Disaster to End Shutdown - The Atlantic

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Concerns about the health of the world economy are increasing..

South Korean exports, a data set often held up as a bellwether for the health of the global economy, fell off a cliff in January, pointing to a troubling slowdown in global trade. Exports from the east Asian nation dropped 14.6% year-on-year in the first 20 days of 2019, according to data released Monday morning. That compared to an increase of 1% over the same period in December. "We had expected a contraction, but the extent of the fall was a surprise," Freya Beamish, chief Asia economist at Pantheon Macroeconomics, wrote in an email.

China economy: Korean export data craters - Business Insider

The company slashed production at the end of 2018 for Chinese automakers and appliance makers by over 30% because of weak demand, Nagamori said. “We saw big slumps in November and December,” he told reporters. “We have faced extraordinary changes.”

Bottom Suddenly Falls Out of Demand in China in Many Sectors | Wolf Street

And the eurozone growth is also declining quite a bit

The European Central Bank needs to wake up. Of all the major central banks, it’s the one that really should be reacting to an evident economic slowdown in its backyard. There’s a danger this might turn into a recession, Europe’s third in a decade. But being proactive is not in its nature. Its Achilles’ heel is running monetary policy via committee for 19 countries with contradictory needs.

Mario Draghi and the ECB Have a Serious Problem - Bloomberg

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Not improving..

Germany's economy avoided a recession at the end of 2018, and analysts expected to see improvement this year. But the picture likely got worse at the start of 2019, according to data released Friday. The Ifo Institute for Economic Research's survey of sentiment in the German economy tanked to a four-year low in February. It "held no good news" for the economy, with one analyst saying that Germany is now close to being pushed "over the edge."

Germany economy: Data worsens at start of 2019 after horrible end to year - Business Insider

If the second half of 2018 provided isolated evidence that global growth had peaked, the data since the turn of the year has been unambiguous: all of the world’s major economies look weaker than they did 12 months ago. Britain grew by just 0.2% in the final three months of 2018, as did the eurozone. And Italy is suffering its fifth recession in two decades. Spending by American consumers in December was weak, but perhaps of more significance was the sharp pull-back in manufacturing in January, which fits with a picture of declining factory output elsewhere. In the winter of 2008, crashing industrial production and a contraction in trade flows were signs of the depth of the global slump. Ominously, both are again weak.

The global economy is slowing down. What can governments do about it? | Business | The Guardian

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A growing number Wall Street economists are downgrading their expectations for first quarter U.S. growth, after a sharp drop in December’s retail figures suggested consumers could be losing their enthusiasm to keep spending. On Monday, the Commerce Department reported that retail sales in January rose by a better-than-expected 1.1%, rebounding from the prior month’s 1.6% drop — which was revised downward from an initial estimate of a 1.2% decline. The nearly $21 trillion U.S. economy relies heavily on consumer spending, which comprises about ⅔ of gross domestic product.

Wall Street mulls sub-2% U.S. growth as consumers cut back on spending

Chinese auto sales declined almost 14 percent in February, an industry group announced Monday, marking the eighth straight month of year-on-year decline in the world's biggest vehicle market. Auto demand in China surged for years as the country experienced decades of economic development that created rising consumer class. But annual sales fell last year for the first time in about two decades as growth in the world's second-largest economy slowed and uncertainty due to the trade war with the United States damaged sentiment.

China's car sales have fallen for 8-straight months.

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China’s slowdown, which has idled factories and construction sites, is rippling through its offices. Educated, white-collar workers are being hit with job cuts and shrinking paychecks. Even big technology companies like JD.com, the online retailer, and Didi Chuxing, China’s answer to Uber and one of the world’s most valuable start-ups, have not been spared. The white-collar job distress suggests the slowdown in China’s economy, the world’s second largest, is broader than official numbers indicate. China increasingly relies on middle-class spenders who are helping to broaden the economy beyond its industrial base. But these consumers are not spending the way they used to, and that lethargy is ricocheting through every part of the economy, from the real estate market to China’s once-thriving tech sector.

China’s Slowdown Already Hit Its Factories. Now Its Offices Are Hurting, Too. - The New York Times

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“Many people may have realized a major part of their expected returns for the year, so in light of recent gains it makes sense for investors to should lighten up on risk.”

Positive German data tempers equity selloff, safe havens in demand | Reuters