Global stock markets finished 2019 and began 2020 with a choppy week of ups and downs, ending with mixed results: China was up but the United States and Europe were down. Stocks rallied midway through the week in response to news that China’s central bank would start a fresh round of economic stimulus. The rally faded on Friday after a U.S. drone killed a prominent Iranian military commander in Baghdad. Iran threatened “harsh revenge,” which many thought would involve attacks against oil infrastructure.
Middle East tensions ratcheted up and investors veered broadly into “risk-off” mode: global stocks faltered, oil and gold prices spiked and U.S. Treasury yields plummeted. Government bond prices jumped across the globe; the ten-year U.S. T-note yield fell from 1.87% to 1.79%. The U.S. dollar declined against a basket of major currencies.
The ISM Manufacturing index slipped in December to 47.2, from 48.1 in November. It was the lowest reading since June 2009; economists had expected 49.0 (readings below 50 signal contracting economic activity). The final December Markit manufacturing purchasing managers index (PMI) of 52.4 was slightly below the flash print of 52.5 and November’s reading of 52.6.
China’s manufacturing sector expanded for a second month in December, as its official manufacturing PMI held at 50.2. Trade activity firmed in the wake of the United States–China trade truce. Conversely, non-manufacturing PMI fell to 53.5 from November’s 54.4, as employment contracted again and construction activity slowed. Separately, IHS Markit China PMI fell to 51.5 in December from 51.8 in November, still pointing to expanding activity.
By contrast, there were few signs that Europe’s industrial slump was ending. The IHS Markit PMI for Germany fell to 43.7 from 44.1 in December. Italy, Spain and the UK also recorded sharper declines in activity, while the French expansion slowed.
The Consumer Confidence Index for December fell to 126.5 from 126.8 in November. The report noted that while the current conditions assessment improved, expectations had fallen.
The minutes from the Federal Open Market Committee’s December meeting showed that participants felt holding rates was appropriate absent a material change in the outlook