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Poor economic data clashes with rising geopolitical tensions

Published Tuesday, January 5th, 2016

New Year’s resolutions were quickly put aside yesterday as chaos reigned across global equity markets after concerns over the health of the world’s second-largest economy returned to the fore. The first trading day of the year brought with it a slew of data and got underway on a sour tone following the release of a private sector survey of China’s manufacturing sector which dipped to 48.2 in December and undershot expectations of a modest rise. The downbeat update marked the 10th straight month in which Chinese factory activity shrank and the ensuing rout on the country’s bourses triggered circuit breakers and halted trading before eventually ending the session down 7%.

The risk-off environment was mirrored in the currency-bloc with the pan-European FTSE Eurofirst 300 stock index tumbling 2.5% as investors shrugged off a forecast-beating Eurozone factory PMI which rose to a 20-month high of 53.2 in December. Inflation data from the region’s engine economy was less encouraging after the pace of German inflation unexpectedly eased in the final month of 2015 and will add to already-heightened levels of ECB angst.

Shares on Wall Street hardly fared any better as both the Dow and S&P slipped 1.5% in the wake of the slump in Asia and Europe with disappointing US economic data only exacerbating the exodus from risk assets. An ISM reading of US manufacturing dipped into contraction territory for the second consecutive month in December at 48.2 while US construction spending fell in November in what was the first drop since mid-2014. The final ingredient of the bearish cocktail was a forecast by the Atlanta Fed of US 4Q GDP at +0.7%, sharply down on the previous estimate of +1.3% made only just before the Christmas break and well off the 2% recorded in 3Q.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.