Morning Minutes 01/02/2019

Morning Minutes

New Year’s Slump Tests Bulls’ Conviction

January 2, 2019
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

Stock markets around the world have stumbled out of the gate to kick off 2019, leaving investors wondering if the rebound that occurred in the last few days of 2018 was just a dead cat bounce.

Investors had initially ignored the soft Chinese Manufacturing PMI report which came out on the weekend (49.4 vs street 49.9 and previous 50.0), but traders reacted negatively overnight when the Chinese non-manufacturing PMI report reiterated the drop under 50 into contraction territory (49.7 vs street 50.1 and previous 50.2). This news appears to have sent Hong Kong down 2.75% and Shanghai down 1.35% overnight. Concerns that a slowing Chinese economy could reduce resource demand put pressure on commodities, sending Copper down 0.6% and WTI Crude Oil down 1.1%.

US index futures have been pointing toward a lower open to the year. Dow Futures were recently down about 325 points, or 1.4%, but this was still up approximately 150 points from the overnight low which was reached just after 3:00 am EST. The 2018 tax loss selling season is now officially over, so how investors respond to data and/or adversity over the next few days may indicate if the December 26-31 rebound was just window dressing and short covering, or the start of a more significant rebound.

It’s a busy week for economic news. There are more numbers due this morning, including Canada Manufacturing PMI at 9:30 am EST and US Markit Manufacturing PMI at 9:45 am. Thursday brings US ADP Payrolls, ISM manufacturing PMI and construction spending. Friday wraps up a busy three days with the US nonfarm payrolls and Canada employment reports.

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