Morning Minutes 12/14/2018

Morning Minutes

Slowing Global Economic Growth Drags Stocks Downward

December 14, 2018
8:45 am EST

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

One of the root causes of the increased market volatility in stocks and commodities as been a growing concern among investors that all of the political tensions swirling out there related to trade, whether Brexit, USMCA, US-China, or other relations, could have a negative impact on the world economy. Stock markets around the world have been selling overnight on indications that these fears may turning into reality.

Last night, China reported disappointing retail sales (8.1% vs street 8.8%) and industrial production (5.4% vs street 5.9%) growth figures, sparking concern that tariffs and other trade measures that have already been implemented may be starting to take their toll on the Chinese economy, a big source of goods and resource demand. On this news, indices in Hong Kong and Shanghai fell 1.6% while the Nikkei dropped 2.0% and Copper has fallen 1.1%.

Meanwhile in Europe, flash manufacturing and service PMI reports for Germany and France came in below expectations. French flash manufacturing PMI dipped below the 50 line into contraction territory at 49.7, below the 50.7 street estimate. German flash manufacturing PMI at 51.5 was short of the 52.0 street estimate. These results indicate that the growing political strife in France has started to impact its economy, while the ongoing Brexit chaos has the potential to have a wider impact on both sides of the Channel. On this news, the Dax and FTSE are down 0.6% while France’s CAC is down 1.0%.

In North America today, US index futures are pointing lower following a mixed result yesterday. Dow Futures are currently down about 195 points. Retail sales grew 0.2% in November, in line with estimates, but October was revised upward to 1.1% from 0.8%, so the bar was higher. So far, this news has had its main impact on the US Dollar which is up 0.5% today, weighing on Gold and putting a headwind in front of stocks. US treasury yields continue to weaken with the 10-year yield falling below 2.90% as pressure on the Fed to keep raising interest rates through 2019 fades.

Although WTI is down 0.7% trading near $52.50, the more significant energy market action today is in natural gas, which is down 4.3% and has dropped back under $4.00/mmbtu. Rising temperatures in consuming regions and a smaller than expected weekly inventory drawdown announced yesterday (77BCF vs street 84BCF) suggest that fears of a supply crunch this winter may be starting to ease possibly leading some traders to take profits.

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