With oil and equity markets having cratered to fresh multi-year lows, trading sentiment is in very shaky condition for the first trading days of the new year. Unfortunately for USD bulls, the first key US datasets for December are also doing little to inspire confidence as we begin the new year.
The latest HIS Markit Manufacturing PMI survey for December, released this week, showed the index falling to 53.8 in December, marking a 15-month low for the index, and registering an almost 2 point contraction from the prior month’s 55.3 reading.
While the indicator is still above the 50 level (the index is deemed in expansionary territory while above and in contractionary territory while below.) With its lowest reading since September 2017, the trend is worrying.
The breakdown of the data shows that growth contracted in both new orders and employment, with job creation falling to an 18-month low. Nevertheless, there were some positives in the data; production remained unchanged from the prior month while exports saw an increase. Furthermore, the slower growth of business over the month saw inflationary pressures falling to an 11-month low.
Chris Williamson, the chief business economist at HIS Markit, explained that:
“Manufacturers reported a weakened pace of expansion at the end of 2018, and grew less upbeat about the prospects for 2019. The survey also revealed signs of slower demand growth from customers, as well as rising concerns over the impact of tariffs”.
US Consumer Confidence Hits 3-Year Low
This data comes just days after the latest US consumer confidence reading which also highlighted concerns. The survey fell to 136.4 in December, down 8.3 points from the prior month’s reading, marking its biggest one-month drop since July 2015.
The decline reflects the level of uncertainty among consumers amidst rising US interest rates and the ongoing trade war between the US and China. Domestic political uncertainty, in the wake of the divided outcome of the US midterm elections last year, is also likely to be adding downward pressure as many of the growth-promising policies put forward by Trump look unlikely to make it through Congress now.
The recent collapse in US equity markets means that US consumer confidence is unlikely to see much recovery over the start of the year. However, the continued decline in oil markets will likely be welcomed by consumers waiting for the sell-off to translate into cheaper energy prices at home.
The precipitous decline in US equities is now attracting large-scale concern. After breaking down through the 2530.70 level, which had been the 2018 low for most of last year, price has since gone on to trade as low as 2317.70, not seen since early 2017.
After bouncing at the aforementioned level, price is now challenging resistance at the 2494.78 level which is holding for now. With the retest of the broken 2530.70 level sitting just above, there is plenty of resistance for the S&P, and we might see some consolidation here for a while. If we see another turn lower, the next level to watch for support is the 2196.07 level.