At the close, the Dow was 302 points lower, with 26 of its 30 components in the red paced by Caterpillar, DowDuPont and United Technologies.
“(Investors) are getting more bearish and less optimistic about the outlook,” Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, told Reuters.
That news compounded the already heightened concerns about global growth from the previous day, when Wall Street was closed for a holiday.
Hopes that the US economy would provide an offset to slowing growth in China and Europe is now threatened by the continuing US federal government shutdown, now into a 32nd day with no signs of a break in the impasse between the White House and Congressional Democrats.
Capital Economics’ Hubert de Barochez said downside risks haven’t yet been fully realised.
“We think that even the revised growth forecasts from the IMF, and the consensus expectations for global growth more generally, are too optimistic.
“In the next two years, we anticipate that growth will slow sharply in the US while the euro-zone economy continues to lose momentum. And even when policy stimulus from the Chinese authorities kicks in later this year, we think that growth in China’s economy will stabilise at a lower level, not rebound like it did in 2016.
“If we are right, concerns about the global economic outlook are likely to grow further this year, boosting demand for safe-haven currencies; we expect the US dollar, Japanese yen and Swiss franc to fare particularly well. And as growth slows in the US, we think that the Fed will gear up for rate cuts next year, pushing the 10-year Treasury yield down to 2.5% before the end of 2019. Lastly, we think that global equities will suffer this year, as they usually do when the global economy falters.”
Local data: NZ CPI fourth quarter
NAB on the pending NZ data: “Market expectations are for a flat result for the quarter, trimming annual CPI inflation to 1.8%, from 1.9%. We are in line with this.
“The RBNZ’s November MPS anticipated a 0.2% increase in the Q4 CPI, for annual inflation of 2.0%. So this appears set for disappointment. But this doesn’t mean core inflation measures are prone to undershoot RBNZ expectations as well (the Bank’s factor model for core inflation was running at 1.7% y/y in Q3, for reference).
“Bear in mind the quarterly flatness captures seasonal weakness in food prices, a 3% fall in fuel prices, and a downshift in health charges as government subsidies increase.”
Overseas data: Bank of Japan policy meeting; US FHFA house prices November, Richmond Fed manufacturing index January,
SPI futures down 28 points or 0.4% to 5775 near 8.30am AEDT
AUD -0.6% to 71.18 US cents
On Wall St: Dow -1.2% S&P 500 -1.4% Nasdaq -1.9%
In New York, BHP -3.5% Rio -2.6% Atlassian +0.9%
In Europe: Stoxx 50 -0.4% FTSE -1% CAC -0.4% DAX -0.4%
Spot gold +0.2% to $US1283.57 an ounce at 12.51pm New York time
Brent crude -2.7% to $US61.05 a barrel
US oil -3% to $US52.18 a barrel
Iron ore -1.5% to $US74.78 a tonne
Dalian iron ore +0.8% to 528 yuan
LME aluminium +1.7% to $US1883 a tonne
LME copper -0.8% to $US5935 a tonne
2-year yield: US 2.58% Australia 1.84%
5-year yield: US 2.58% Australia 1.95%
10-year yield: US 2.74% Australia 2.30% Germany 0.23%
US-Australia 10-year yield gap as of 8am AEDT: 44 basis points
From Today’s Financial Review
Bowen touts $200 billion tax hike ‘buffer’: Labor must implement all its $200 billion-plus in pledged tax rises to arm the federal government with a bigger fiscal “buffer” to counteract any global downturn.
Xi sends out alert signals as risks rise: President Xi Jinping says he is concerned about China’s slowing economy, US trade tensions and potential political instability, urging the country’s top officials to be “highly alert” to unexpected risks.
How to tell if your super fund is a dud: Start by digging out your most recent statement and look for an average yearly return figure for the past decade, says SuperRatings’ Kirby Rappell.
BofA chief sees more US bank mergers: Bank of America chief executive officer Brian Moynihan predicted another round of consolidation in the US that could lead to the emergence of a new competitor.
Hedge funds Elliott Management and Starboard Value have taken stakes in eBay and are pushing for changes including the sale of some of the e-commerce company’s businesses. In a letter to the company’s board, Elliott asked eBay to hive off its StubHub ticket sales business and eBay Classifieds Group as part of a plan the hedge fund says could double the company’s value.
IBM reported a smaller-than-expected 3.5 per cent drop in fourth-quarter revenue, as higher sales in its newer businesses such as cloud, software and services partially offset tapering sales of its latest mainframe computers and the pressures from a strong dollar.
Johnson & Johnson forecast 2019 sales that fell short of analysts’ estimates and said it expected further pressure on US prescription drug prices, weighing on the broader pharmaceutical sector.
Halliburton forecast lower revenues in key business areas in the first quarter, overshadowing a quarterly profit beat and a pledge to reduce 2019 spending. Halliburton said it will reduce its 2019 capital spending budget by nearly 20 per cent to $US1.6 billion. Further reductions could be made if market conditions erode, executives said on the company’s fourth quarter earnings call.
What to expect from the ECB: The ECB meeting this week will reignite interest in the bank’s intensifying policy challenges as it also faces an upcoming leadership change, according to Mohamed El-Erian.
European shares extended their slide on Tuesday as growth worries weighed on global markets while results from Switzerland’s UBS dragged on the banking sector.
The pan-European STOXX 600 fell 0.4 per cent, with Germany’s DAX also retreating 0.4 per cent and Italy’s FTSE MIB down 1 per cent as a new batch of corporate updates cemented the risk-averse mood.
Shares in UBS dropped 3.2 per cent after the bank’s fourth-quarter earnings sent jitters across a sector struggling to recover after losing almost 30 per cent of its value in 2018.
Europe’s banking index fell 1 per cent, with HSBC , BNP Paribas and Santander down between 1.2 per cent and 2.7 per cent.
Puncturing the gloom was German fashion house Hugo Boss , shares of which jumped 5.2 per cent after it predicted more expansion this year after a pick-up in sales growth at the end of 2018.
“Hugo Boss saw a solid end to the year with Q4 sales coming slightly ahead of expectations … thanks to what looks like a stronger wholesale development,” Berenberg analysts wrote.
China’s unquenched thirst for cognac helped French spirits group Remy Cointreau to deliver stronger than expected third-quarter revenue, but the shares quickly fell into the red after a positive start.
“We expect investors to react positively to the Q3 beat but believe concerns about depletion trends during the forthcoming Chinese New Year will temper enthusiasm,” UBS analysts wrote.
Slow China, big risk: Xi Jinping has used his highest office to warn China of risks ahead.
US views China as rival, not partner: Former Australian Prime Minister Kevin Rudd says after 40 years of engagement, the United States has dramatically shifted its position on China.
Huawei’s Liang calls for Meng’s release: Huawei chairman Liang Hua wants a quick resolution of the case of its former finance chief Meng Wanzhou, who has been detained in Canada.
Hong Kong stocks closed lower on Tuesday after the global economic outlook grew murky, fresh tensions emerged between the United States and China, while shares of market leader Tencent faltered. The benchmark Hang Seng index ended down 0.7 per cent at 27,005.45 points. The Hang Seng China Enterprises index fell 0.9 per cent.
Tencent, the most actively-traded name in Hong Kong’s stock market , missed out on a third batch of video games approvals in China after a long freeze on such approvals for much of last year. The company’s stock edged down 1.2 per cent.
With Tencent in trouble, and as US-China relations may sour again, the information technology sub-index lost 1.5 per cent and shares of IT hardware makers dropped 1.1 per cent.
China’s main Shanghai Composite index closed down 1.2 per cent at 2579.70 points, while the blue-chip CSI300 index ended down 1.3 per cent.
Japan’s Nikkei edged lower on Tuesday, retreating from a one-month high.
Panasonic fell in the afternoon and ended 2.7 per cent lower after sources said that Tesla has signed a preliminary agreement with China’s Tianjin Lishen to supply batteries for its new Shanghai car factory, as it aims to cut its reliance on Panasonic.
The Nikkei share average shed 0.5 per cent to 20,622.91, after closing at over a one-month high on Monday.
Fed needs rate rethink: Davos: Billionaire investor Ray Dalio chastised monetary policy makers for an “inappropriate desire” to tighten monetary policy faster than the capital markets could handle.
Argentina’s central bank said it bought $US50 million at an average price of 37.597 pesos per US dollar in the foreign exchange market on Tuesday, part of its effort to maintain the currency in a trading band agreed with the International Monetary Fund.
Justin Gmelich, a longtime executive in Goldman Sachs’ bond trading business, plans to retire from the Wall Street bank in March, according to a memo sent by management on Tuesday.
Gmelich has been chief operating officer of fixed income, currency and commodities (FICC) trading since 2017, and before that ran credit and mortgage trading. He joined Goldman Sachs in 1998 and became partner in 2004.
Spain’s long-dated government bond yields fell to six-month lows on Tuesday after a new 10-year bond, sold via a syndicate of banks, attracted record demand.
Spain attracted a record €47 billion of orders for its new 10-year syndicated bond issue, allowing the country’s debt agency to set a size of €10 billion.
“Bond spreads have widened to a decent degree recently,” said Seamus Mac Gorain, fixed income portfolio manager at JPMorgan Asset Management.
“Because of this widening of spreads, people have felt there were attractive valuations coming into January, which is why all of these new bond issues have been well received.”
Marex Spectron on metals markets: “Markets have already posted strong rallies in the past few weeks (Dow up 14% since 24th Dec, LME index up 5.25% between 3-18th Jan) and it is natural for them to pause given macro uncertainty and in the base metals case, where shorts have largely covered aside from ALI and to a lesser extent LEAD it appears. And the implied vol sell off leaves gamma traders to attempt to capture ranges. So we remain largely range bound. However we are of the view that outrights and spreads represent value on dips UNLESS the macro significantly deteriorates.”
MS on aluminium: “Continues to exhibit the largest short of the complex on our ests at 30% of OI (cob Thurs). Turnover this am has been firm with 1.7k lots trading by 8am, +26% on the 20-day avg. Resis into YTD highs c. $1885. Meanwhile supp into uptrend line from 3rd Jan low, which comes in at $1825 today. Capital Economics on the wires commenting that growth in global Ali output will likely increase as expansion in Bahrain increases in 1H and margins at high cost smelters rise following declines in Alumina and power costs. LME on-warrant stocks fall 37kt or 3.6% to 997.2kt, with the declines mostly Port Klang, Malaysia.”
Three-month aluminium on the London Metal Exchange closed up 1.7 per cent at $US1883 a tonne, having hit its strongest since late December.
“The question is how long China can maintain (its) recent record-high production rate, given Chinese smelters are currently chalking up average losses equating to $145 per tonne,” Commerzbank said in a note, citing data from Shanghai Metals Market.
Bellwether copper ended down 0.8 per cent at $US5935 as global equities slumped after the International Monetary Fund warned of a darkening growth outlook.
The union of supervisors at Chilean state miner Codelco’s Gabriela Mistral mine has rejected the company’s final offer for a new collective labour agreement, raising the spectre of a strike in the coming days.
BHP Group raised its 2019 copper production forecast to between 1.6 million and 1.7 million tonnes.
The ASX broke a five-day winning streak as banks, miners and energy companies lost ground after the International Monetary Fund issued a gloomy forecast for the global economy.
The benchmark S&P/ASX 200 Index dropped 31 points, or 0.5 per cent, to 5858. More broadly, the All Ordinaries Index fell 29 points, or 0.5 percent, to 5924.
Miners under pressure included sector giant BHP, down 1.3 per cent to $32.77. It flagged a first-half $US600 million ($840 million) “negative impact” on productivity, naming the November train derailment and production problems at its iron ore mines.
Office outfitter Unispace courts investor interest; EY hired for process
GrainCorp sow seeds for agribusiness shake-up. Who’s next?
AMP Capital taps MacCap for ANU Housing auction
with Reuters, Bloomberg, AAP
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