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Canadian and U.S. stocks are set for a sharp drop at the open Wednesday to start off 2019 on a negative note after disappointing Chinese economic data.

The Dow is set for a triple-digit drop at the open as global growth worries persist.

The U.S. S&P 500 and Dow Jones index futures were down 1.5 per cent and Nasdaq futures fell 2.3 per cent, signalling Wall Street would open in the red on the first trading day of the New Year after closing 2018 with the worst annual loss since 2008.

MSCI’s index of world shares dropped 0.4 per cent as weak manufacturing-activity surveys across Asia were followed by disappointing numbers in the euro zone.

Fears of a global slowdown were aggravated on Wednesday by a survey showing China’s factory activity contracted for the first time in over two years in December as domestic and export orders continued to weaken. Mainland Chinese shares fell 1.2 per cent and that led S&P 500 stock futures to give up early gains. Steel futures, a key gauge of world growth sentiment, lost as much as 1.5 per cent in Shanghai trade.

Japan’s Nikkei was closed for a holiday but Hong Kong’s Hang Seng was off 2.8 per cent.

The gloom continued in Europe, where the Purchasing Managers’ Index for the euro zone reached its lowest since February 2016. Future output PMIs were at a six-year low .

A pan-European share index tumbled 1.3 per cent, led by 1.5-per-cent-plus losses in Paris, as France’s PMI fell in December for the first time in two years.

Britain’s FTSE was down 0.64 per cent and Germany’s DAX lost 0.25 per cent.

“It’s a continuation of the worries over growth. You can see them in the Asian numbers, which all confirm that we have passed peak growth levels,” said Tim Graf, chief macro strategist at State Street Global Advisors.

The knock-on effects from China’s slowdown and global trade tensions were rippling across Asia and Europe, he said.

“I don’t think the trade story goes away, and Europe, being an open economy, is still vulnerable plus there is less monetary policy support than there has been,” he said, in a reference to the European Central Bank’s bond-buying program, which ended on Dec. 31.

Commodities

Brent crude fell to about US$53 a barrel on Wednesday, under pressure from rising output in major OPEC and non-OPEC producers and due to concerns about an economic slowdown that could weaken demand.

Russian production hit a post-Soviet record in 2018, figures showed on Wednesday.

Earlier this week, official data showed U.S. output reached a record in October and Iraq boosted oil exports in December.

Brent crude fell 72 cents to US$53.08 a barrel. On Dec. 26, it hit US$49.93, the lowest since July 2017. U.S. crude slipped 56 cents to US$44.85.

“The omens are far from encouraging,” said Stephen Brennock of oil broker PVM, citing rising non-OPEC supply and the likelihood of further increases in oil inventories.

“The current bearish bias will therefore continue in the near term and it stands to reason that oil will struggle to break out from its current trough,” he said.

Oil fell in 2018 for the first year since 2015 after buyers fled the market in the fourth quarter over growing worries about excess supply and the economic slowdown.

Surging shale output has helped make the United States the world’s biggest oil producer, ahead of Saudi Arabia and Russia. Oil production has been at or near record highs in all three countries.

Gold touched its highest in more than six months on Wednesday as sagging equities compounded concerns over weakening global markets, prompting safe-haven flows into the precious metal.

Spot gold was up 0.4 per cent at US$1,287.31 an ounce, having earlier touched its highest since June 15 at US$1,288.66.

U.S. gold futures rose 0.6 per cent to US$1,289.40.

“We are seeing a very risk-averse market right now,” said Craig Erlam, senior market analyst at OANDA.

Currencies and bonds

In a bleak start to the year, the mood was wary in currency markets with perceived riskier currencies such as the Australian dollar and the euro down across the board while the yen climbed to a seven-month high versus the dollar.

The yen often benefits during geopolitical or financial stress as Japan is the world’s biggest creditor nation and sees inflows during periods of heightened global market volatility.

The Canadian dollar fell with sagging oil prices and was trading around 73.3 US cents in trading Wednesday.

“The year starts with a widespread consensus for U.S. dollar weakness as the main theme. Whilst we do not buy into this consensus, we also note, as we have identified in previous years, that foreign exchange markets have tendency to overshoot in January (in either direction) and reverse in the rest of the first quarter, at least in certain currency pairs,” said RBC Europe’s chief currency strategist Adam Cole.

Japan’s currency has strengthened for three straight weeks and was among the few gainers in 2018 against a resurgent dollar. In the last four days alone, it has gained 2.2 per cent.

“If you embrace the idea of the U.S. slowdown gathering momentum and the Federal Reserve cutting rates, then the yen is the currency for you,” said Kit Juckes, chief FX Strategist at Societe Generale.

The U.S. dollar fell 0.8 per cent against the yen to 108.71, its lowest since June 1.. The dollar index was little changed at 96.224.

Weak manufacturing data from Spain, France, Italy, and Germany weighed on the euro, which weakened 0.2 percent against the dollar to $1.1438.

Stocks to watch

Chinese gold miner Zijin Mining Group Co Ltd., said it plans to sell up to 8 billion yuan worth of new shares in Shanghai to help fund its purchase of Canada’s Nevsun Resources Ltd.

Qatar’s cabinet approved the establishment of a Microsoft global data center in the small Gulf country, state news agency QNA reported on Wednesday. Azure, Microsoft’s cloud platform, announced plans to expand into the Middle East for the first time last year by setting up data centers in the neighboring United Arab Emirates.

Earnings: Aleafia Health Inc.; Patriot One Technologies Inc.

Economic news

(9:30 a.m. ET) Canada's Markit Manufacturing PMI for December.

(9:45 a.m. ET) U.S. Markit Manufacturing PMI for December.

With files from Reuters

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