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A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

“Happy New Year everyone. U.S. stock futures are plunging” was how Bloomberg’s Joe Weisenthal greeted his twitter followers this morning. Futures indicated a 1.5 per cent or 37 point drop at the open for the S&P 500 at time of writing.

Economic data from China and elsewhere is the primary cause of renewed selling pressure Wednesday,

“World shares started 2019 on a downbeat note, oil prices and bond yields skidded lower and the Japanese yen strengthened on Wednesday as data from China to France confirmed investors’ fears of a global economic slowdown… China in particular was in focus, after factory activity contracted for the first time in over two years. 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. The data suggests there will be no respite for equities or commodities after the losses of 2018.”

“After brutal 2018, world stocks nurse a New Year's hangover” – Reuters

“The PMIs are signaling trouble ahead” – Bloomberg

“ U.S.-China trade war takes toll on global manufacturing” – Reuters

“@C_Barraud 🇨🇳 #CHINA DEC CAIXIN #MANUFACTURING PMI: 49.7 V 50.2E (first contraction since May 2017) *New Orders index: 49.8 v 50.9 prior (first contraction since June 2016) *New export orders ⬇for the 9th month in a row *Link: bit.ly/2QeZRqI “ – Twitter

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Deutsche Bank strategist Masao Muraki warned clients that U.S. credit markets are in danger if corporate earnings revisions disappoint,

“U.S. economic and credit cycles have stretched and are vulnerable to dramatic contraction in the event of an external shock. The Chinese economy is under downward pressure and, along with European political risk, could trigger an external shock to the U.S. economy in 2019… The markets could rebound if corporate earnings and economic data next January do not substantiate such fears. Conversely, if those factors appear to justify December’s market downturn, risk assets could come under greater downward pressure in 1Q. We find it tough structurally to support a bullish stance on risk assets in light of the credit cycle.”

“@SBarlow_ROB DB: “Our team (global financial research team) believes that the U.S. economic and credit cycles have stretched and are vulnerable to dramatic contraction in the event of an external shock” – (research excerpt) Twitter

“@jsblokland We have just witnessed one of the biggest drops in the global earnings revision ratio since 1988. “ – (Chart) Twitter

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Prominent Morgan Stanley economist Ellen Zentner believes market pundits are under-estimating the negative effects of changing financial conditions,

“We maintain our view that the economy is set to slow sharply in 2019 with a growth correction playing out by 3Q. While a growth correction does not mean GDP is shrinking, financial markets and Federal Reserve policymakers often respond like it is a recession… am skeptical that my fellow forecasters have made a proper accounting of the reflexive effects of tighter financial conditions such as higher interest rates and wider corporate credit spreads. Taking into account theses factors we have no contribution to GDP growth in 2019 from interest rate sensitive sectors such as housing and autos. Business investment is also depressed not only by wider corporate credit spreads, but slower global growth and uncertainty around trade policy”

“@SBarlow_ROB MS's Zentner: "I am skeptical that my fellow forecasters have made a proper accounting of the reflexive effects of tighter financial conditions such as higher interest rates and wider corporate credit spreads"’ – (research excerpt) Twitter

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Merrill Lynch is more or less begging global central banks to stop reducing monetary stimulus,

“ In the latest quarterly CFO survey (Dec. 12, 2018), confidence in the world economy has collapsed to levels below early 2016, and about the same depressed levels of late 2011/early 2012. Both those episodes were followed by global central bank easing… The view of asset markets and global CFOs is in sync – global growth is now in a broad, deep and persistent slowdown.”

“@SBarlow_ROB ML" The view of asset markets and global CFOs is in sync – global growth is now in a broad, deep and persistent slowdown"” – (research excerpt) Twitter

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Tweet of the Day: “ @JKempEnergy BRENT calendar spreads have historically been closely correlated with the global supply-demand balance. At the moment they point to a market expected to remain oversupplied in 2019. Fears about a global slowdown and its impact on oil consumption outweighing OPEC+ output cuts.” – Twitter

Diversion: “ I Was A Cable Guy. I Saw The Worst Of America” – Huffington Post (NSFW language)

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