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Canada’s stock market is set to slip at the open Monday following weak economic data from China and ongoing worries about trade.
U.S. markets are closed for Martin Luther King Jr. Day.
Overseas, markets were mixed as data showed the Chinese economy slowed last year but grew 6.4 per cent in the fourth quarter from a year earlier, matching levels last seen in early 2009 during the global financial crisis.
The data also showed China’s 2018 economic growth slowing to the weakest in 28 years, at 6.6 per cent versus 6.8 per cent in 2017.
Although the slowdown was in line with expectations and not as sharp as some analysts had expected, the cooling of the world’s No. 2 economy casts a shadow over global growth.
“It remains quite likely that the trade spat with the U.S. has played a part in this latest slowdown, but investors should also factor in that it simply isn’t possible for the Chinese economy to grow at the pace that it has over the last 10 years, in the next 10 years, as the law of diminishing returns kicks in, and the economy becomes more mature,” CMC Markets chief market analyst Michael Hewson said.
But the data was in line with forecasts and there were some bright spots, with factory output picking up stronger-than-expected in December and a stronger services sector.
“On balance, the data is relatively positive and does not point to a hard landing,” said Timothy Graf, head of macro strategy at State Street Global Advisors in London.
“The consumption data being better than expected is the positive takeaway in that China is trying to engineer a move towards a consumer-led economy.”
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 per cent, touching its highest since early December. Stock markets in China and Japan added 0.25-0.6 per cent.
Growing signs of weakness in China – which has generated nearly a third of global growth in recent years – has fuelled anxiety about risks to the world economy in recent weeks and are weighing on profits for firms such as Apple.
Chinese stocks had rallied on Friday on reports U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports, a story later denied.
U.S. President Donald Trump said on Saturday there has been progress toward a trade deal with China, but denied that he was considering lifting tariffs.
European stock markets were mixed as a note of caution set in with British Prime Minister Theresa May set to present her ‘Plan B’ for Brexit to parliament later in the day.
Britain’s FTSE was up 0.14 per cent, Germany’s DAX was off 0.4 per cent and France’s CAC was off 0.12 per cent.
In other economic news, the International Monetary Fund on Monday cut its world economic growth forecasts for 2019 and 2020, due to weakness in Europe and some emerging markets, and said failure to resolve trade tensions could further destabilise a slowing global economy.
In its second downgrade in three months, the global lender also cited a bigger-than-expected slowdown in China’s economy and a possible “No Deal” Brexit as risks to its outlook, saying these could worsen market turbulence in financial markets.
The IMF predicted the global economy to grow at 3.5 per cent in 2019 and 3.6 per cent in 2020, down 0.2 and 0.1 percentage point respectively from last October’s forecasts.
The new forecasts, released ahead of this week’s gathering of world leaders and business executives in the Swiss ski resort of Davos, show that policymakers may need to come up with plans to deal with an end to years of solid global growth.
Commodities
Oil prices fell on Monday, in line with weaker stock markets after evidence that economic growth in China, the world’s second largest crude consumer, eased in 2018.
Brent crude oil futures were last down 35 cents on the day at US$62.35 a barrel, while U.S. crude futures were down 23 cents at US$53.57 a barrel.
While there is concern that a slowing global economy could impact oil demand growth and, therefore the price outlook, the production cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) would likely support crude oil prices, analysts believe.
“You can’t justify oil prices at these levels. We’re looking basically at an average of almost US$70 a barrel for Brent in 2019,” ING commodities strategist Warren Patterson said. “I am getting increasingly concerned about how tight the market will be going into 2020.”
Gold slipped to a more than two-week low on Monday as a firm dollar and more risk appetite outweighed support coming from expectations of a pause in the U.S. interest rate hike cycle.
Spot gold was 0.2 per cent lower at US$1,279 per ounce, having hit its lowest since Jan. 4 earlier in the session of US$1,277.11. U.S. gold futures were down 0.3 per cent at US$1,278.20 per ounce.
“Some calm has been restored in the equities market ... We are seeing a bit of withdrawal of interest from the gold market,” said Macquarie commodity strategist Matthew Turner.
Currencies and bonds
The Canadian dollar was trading slightly lower near the 75.2 US cents level as oil and gold prices slipped.
The U.S. dollar held near a two-week high on Monday, shrugging off concerns about weakening global growth.
Going into 2019, weakness in the dollar was a consensus view among currency market traders. The bet was that the U.S. central bank would stop raising interest rates and the economy would slow after a fiscal boost last year.
But the greenback has enjoyed its first weekly gain since mid-December, buoyed by hopes of a thaw in U.S.-China trade tensions and stronger-than-expected U.S. industrial production numbers.
The dollar index, which measures its strength against a group of six major currencies, on Monday was steady at 96.388 after climbing to 96.394 on Friday, its strongest since Jan. 4.
“The U.S. dollar is benefiting from its role as safe currency haven,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.
“The Federal Reserve could cushion a weaker economy with monetary policy measures... protecting the U.S. quite well from weakening global growth and making the dollar the currency of choice,” she added.
U.S. 10-year Treasuries were slightly higher yielding 2.788 per cent. The Canadian 10-year bond was down slightly yielding 2.018 per cent.
Stocks to watch
Facebook Inc’s WhatsApp messenger service is globally limiting the number of times a user can forward a message to five, in a bid to fight “misinformation and rumours,” company executives said on Monday. Previously, a WhatsApp user could forward a message to 20 individuals or groups. The five-recipient limit expands globally a measure WhatsApp put into place in India in July after the spread of rumors led to several killings there.
Uber Technologies Inc. is positioning its business to become the Amazon.com of transportation, a platform where a consumer will one day be able to summon any form of getting around, from bikes to commercial trucks, with just the push of a button. The ride-hailing startup is trying to convince investors it can become the world’s largest transportation company ahead of an expected public offering this year.
Economic news
China reports its fourth-quarter real gross domestic product. Estimates are for an increase of 6.4 per cent year over year.
China reports is December industrial production. Estimates are for a 5.3 per cent increase year over year.
U.S. markets are closed for Martin Luther King Jr. Day.
With files from Reuters