On Wednesday Global shares dropped to one-month lows following the tumbling of the US manufacturing sector to a new low in over a decade. This has sparked fears that the ongoing trade war dispute between the US and China has spread across the US economy.
Stocks across the globe slump
Slowing of the US economy will be bad news for the global economy that is already slowing. This comes at a time when Europe is in the blink of a recession. The Gauge of MSCI of stocks across the world which covers close to 49 markets was on Wednesday at its lowest since the beginning of last month after its shed 0.83% in the last trading session.
In Asia, Australian shares dropped over 1% while Japan’s Nikkei dropped 0.50% and MSCI’s ex-Japan Asia Pacific shares index equally lost 0.32%. Currently, Chinese markets are shut because of the ongoing holiday. In Hong Kong, the Hang Seng index dropped 0.3% a day after the market holiday with the index dipping more than 1.2% in early trading. Tension continues to grow in the city after months of pro-democracy protests. On Tuesday polices used live ammunition and they shot a teenage protester.
In a note ING chief, Asia-Pacific economist Rob Carnell indicated that there was nothing apart from the terrible number that is conceivable for Hong Kong. He added that he was observing the Hong Kong situation with increasing despair. Things are even worse in the region as political tensions continue to grow. On Wednesday North Korea performed missile tests hardly a day after Pyongyang indicated that they plan to hold talks with the US over the weekend.
US manufacturing contracting
On Wall Street, a new four week low was attained after the S&P 500 dipped 1.23%. The selling resulted following a drop in the Institute for Supply Management’s index of factory activity. This is the US’s most closed-observed data on manufacturing, and it declined 1.3 points to around 47.8, which is the lowest it has been in almost a decade. When the figure gets below 50, then it implies that the manufacturing sector is shrinking. Markets were optimistic that the index would jump to above 50.
The outlook of manufacturing is banking on the expected US-China trade negotiations scheduled for next week. If the talks progress well, there is a possibility of recovery in the ISM data going forward. For now, the US economy is still solid, and you can’t bet on further losses yet.