Stock markets started the last quarter of 2019 on the back foot.
A string of poor manufacturing data across the EU and US has rattled investor confidence. In the US, the Institute for Supply Management’s (ISM) index of factory activity, one of the most closely-watched data on U.S. manufacturing, dropped 1.3 points to its lowest level in a decade to 47.8. It appears that the Sino-US tariff war is biting.
In Europe, the manufacturing data is also significantly negative. As this chart from the Financial Times shows, many European countries are suffering from a persistent drop in manufacturing activity, including the UK. What is most worrying is that the powerhouse of the EU – Germany – is showing the biggest decline.
Source: Financial Times (paywall)
This economic trend is exerting considerable pressure on stock markets. Key equity indices, as proxied by their respective ETFs, depict a minor toppy pattern. The S&P 500 ETF (SPY), for example, developed the second bearish bar in three sessions, which pulled the instrument back into the prior trading range at 292-282 (see Featured Chart).
In the UK, the FTSE 100 ETF (ISF) has also regressed into its former trading range. But the pattern of rising lows indicates some technical support at 710-715 (see below). For the DAX Index, short-term resistance is noted at 12,500.
However, it is best to remember that economic data can be volatile. Later this week we will see services PMI data from the EU and, following that, the US unemployment data on Friday. A better-than-expected reading from these may result in a bounce in stock markets. Therefore, I would not be too bearish on markets unless they show decisive breaks to the downside.
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Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.