Global stocks decline as fears of a slowdown intensify
Global markets started the year on a lower note after weaker than expected manufacturing data from China. The Caixin manufacturing PMI data contracted in December to 49.7 from November’s gain of 50.2. Investors were expecting the data to show an improvement of 50.3. The reading was the lowest level since June 2017 and is important because of the special role China plays in the global manufacturing industry. As a result, the Shanghai composite index and China’s A50 indices declined by 1.15% and 1.30% respectively. Hong Kong’s Hang Seng and Japan’s Nikkei declined by 2.7% and 0.7%. In Europe, the DAX and Stoxx declined by 0.30% and 0.50% respectively. US futures pointed to a sharp open with the Dow and S&P declining by more than 1.45%.
Sterling declined sharply against the USD even after the Office of National Statistics (ONS) released the manufacturing PMI data. The numbers showed that the country’s PMI increased to 54.2 in December. This was higher than the consensus estimate of 52.6 and higher than November’s 53.6. It was also the highest level in six months and was an indication of the increasing worries among manufacturers on the risks posed by Brexit. They fear that a no-deal Brexit could lead to disruption in industry. In case of a no-deal Brexit or a hard Brexit, goods coming from the European Union could see major delays at the border.
The euro declined against the USD even after data showed an improvement in the manufacturing sector. In Germany, the manufacturing PMI remained unchanged at 51.5. Elsewhere, in Italy, the PMI increased to 49.2. While this was still a contraction, it was higher than the consensus estimates of 48.4. For the EU27, the manufacturing PMI remained unchanged at 51.4.
Gold continued to rise as investors rushed to safety. It reached an intraday high of $1290. Investors tend to rush to gold when risks increase. The same trend was followed by other safe haven assets like the Japanese yen which rose by more than 50 basis points. European and US Treasuries rose as well.
After initially rising, the EUR/USD pair pared the gains and declined by almost 50 basis points. As of writing, the pair is trading at 1.1410, which is lower than where it ended the year. The pair remains closer to last year’s low of 1.1215. On the hourly chart, the pair is trading below the 50-day and 25-day exponential moving average. With no major support in sight, the pair could continue going down today. If it does, it will likely test the 1.1400 level.
The GBP/USD pair declined sharply today and reached an intraday low of 1.2645. This price was lower than the end of year’s close of 1.2743. On the hourly chart, the price is below the 50-day and 25-day exponential moving average while the relative strength index has risen to above 30. At the same time, the RSI has declined from the overbought level of 70 to the current 30. The pair will likely continue moving lower as traders wait for a policy direction on Brexit.
Gold rose to a six-month high of $1290 as traders flocked to safe haven assets. On the hourly chart, the XAU/USD pair’s price is above the short and medium-term exponential moving averages while the relative vigor index and the relative strength index have moved to the overbought zone. There is a likelihood that the upward trend will continue in the short term. If it does, the pair will likely test the 1300 level.