Weak China trade weighs on stocks; risk-off trade in play

January 13, 2019 7:04 PM

By Caroline Valetkevitch

NEW YORK (Reuters) - World stock indexes fell on Monday after a surprise contraction in Chinese trade reignited fears of a sharper slowdown in global growth and caused investors to sell riskier assets.

Oil prices fell more than 2 percent and the safe-haven yen rose against the dollar following the China news, which added to worries that U.S. tariffs on Chinese goods were taking a toll on the world's second-largest economy.

"The biggest theme (in the market today) is risk-off," said John Doyle, vice president of dealing and trading at Tempus, Inc.

Data from China showed imports fell 7.6 percent year-on-year in December while analysts had predicted a 5-percent rise. Exports dropped 4.4 percent, confounding expectations for a 3-percent gain.

(GRAPHIC: China trade shock - https://tmsnrt.rs/2SYCUu9)

For an interactive version of the following chart, click here https://tmsnrt.rs/2SRopIf.

The United States and China - the world's two largest economies - have been in talks for months to try to resolve their bitter trade war, with no signs of substantial progress.

Adding to the gloom were weak industrial output numbers from the euro zone, which showed the largest fall in nearly three years.

Softening demand has been felt around the world, with sales of goods ranging from iPhones to automobiles slowing, prompting profit warnings from Apple (NASDAQ: AAPL) among others.

Trade-sensitive shares eased, including Boeing Co (NYSE: BA) and Caterpillar Inc (NYSE: CAT), though U.S. stock investors also were on edge as the U.S. corporate earnings season kicked off.

"It will be a big thing to see if the Chinese slowdown is real, or if it is an excuse for some companies not to hit the high growth seen last quarter," said Craig Birk, chief investment officer at Personal Capital in San Francisco. "If things are really slowing down, you'll start to see it show up this quarter in earnings."

Citigroup Inc (NYSE: C) shares rose after the bank beat profit estimates as lower expenses offset a drop in quarterly revenue. JPMorgan Chase & Co (NYSE: JPM) and Wells Fargo & Co (NYSE: WFC) are set to report earnings on Tuesday.

The Dow Jones Industrial Average <.DJI> fell 86.11 points, or 0.36 percent, to 23,909.84, the S&P 500 <.SPX> lost 13.65 points, or 0.53 percent, to 2,582.61 and the Nasdaq Composite <.IXIC> dropped 65.56 points, or 0.94 percent, to 6,905.92.

The pan-European STOXX 600 index <.STOXX> lost 0.48 percent and MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.51 percent.

U.S. Treasury yields rose as risk sentiment improved after President Donald Trump said he was not looking to declare a national emergency amid a partial government shutdown.

Benchmark 10-year notes last fell 1/32 in price to yield 2.7024 percent, from 2.699 percent late on Friday.

In the foreign exchange market, the Japanese yen , a safe-haven currency that benefits in times of geopolitical turmoil, rose against the U.S. dollar. The yen was last up 0.3 percent against the greenback.

COMMODITIES SUFFER

The prospect of slowing global growth also roiled some commodity markets. Industrial metals copper and aluminum lost ground in London and Shanghai.

Three-month copper on the London Metal Exchange ended down 0.8 percent at $5,897 a ton, its lowest in more than a week.

Oil prices ended down more than 2 percent on the global slowdown concerns.

Brent crude futures lost $1.49, or 2.5 percent, to settle at $58.99 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell $1.08 to settle at $50.51 a barrel, a 2.1 percent loss.

(Additional reporting by Kate Duguid, April Joyner and Stephanie Kelly in New York and Medha Singh and Karin Strohecker; Editing by Nick Zieminski and James Dalgleish)

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