Pedestrians walk near the NYSE. (Photographer: Michael Nagle/Bloomberg)

Five Things You Need to Know to Start Your Day

(Bloomberg) --

Weak manufacturing data and Apple’s dismal outlook combine to sink U.S. stocks, while Asia finally succumbs to the global property-market slowdown. Here are some of the things people in markets are talking about.

Stocks Stumble

Asian stocks are set to follow U.S. equities downward, after a factory gauge dropped the most in a decade and Apple cut its sales outlook, adding to concern that global growth is slowing. Treasuries rallied and the yen strengthened. The S&P 500 Index tumbled 2.5 percent for the steepest sell-off since Christmas Eve, when the gauge fell within a few points of a bear market before embarking on a 6.8 percent rally over the next five sessions. Apple plunged the most since 2013 after citing an unforeseen slowdown in China for its woes. In the wake of the company’s revenue warning, investors punished China-exposed firms. Ten-year Treasury yields dropped to an 11-month. Bristol-Myers Squibb’s bid to buy Celgene and a strong reading on private hiring for December were shrugged off by bearish investors.

Manufacturing Meltdown

A gauge of U.S. manufacturing plunged by the most since the 2008 recession a day after Apple Inc. cut its revenue outlook, fueling concern that the trade war with China is taking a bigger-than-expected toll on economic growth. The Institute for Supply Management index dropped to a two-year low, missing all estimates in Bloomberg’s survey, led by new orders slumping the most in almost five years and the steepest production slide since early 2012. Just 11 of 18 industries reported growth, the fewest in two years. “There’s just so much uncertainty going on everywhere that businesses are just pausing,” Timothy Fiore, chairman of ISM’s manufacturing survey committee, said in an interview. “No matter where you look, you’ve got chaos everywhere. Businesses can’t operate in an environment of chaos. It’s a warning shot that we need to resolve some of these issues.”

Fed Rate Cuts on Horizon?

Bond traders are showing little sign of stepping back from their fight with the Federal Reserve over the path of interest rates and the market is now positioned for cuts on the horizon. Just over a month ago the market was pointing to a quarter-point hike in 2019, but it’s now factoring in a more than 50 percent chance of a reduction this year. That’s in stark contrast to the median projection of two increases projected by Fed officials last month. On top of that, traders are now fully pricing in a cut by April 2020. The rate on the June 2020 U.S. dollar overnight index swap, which was close to 3 percent less than two months ago, dropped as low as 2.04 percent on Thursday — suggesting a benchmark rate more than 30 basis points below the current effective fed funds rate by the middle of 2020.

Property-Market Slowdown Hits Asia

Asia is finally succumbing to the global property slowdown that’s jolted homeowners and investors from Vancouver to London, with markets in Singapore, Hong Kong and Australia showing fresh signs of softening. The economic ramifications could be serious. Lower house prices and higher mortgage rates will not only dent consumer confidence, but also disposable incomes, S&P Global Ratings said in a report last month. A simultaneous decline in house prices globally could lead to “financial and macroeconomic instability,” the IMF said in study released in April. While each city in the region has its own distinct characteristics, there are a few common denominators: rising borrowing costs, increased government regulation and volatile stock markets. There’s also dwindling demand from a force so powerful it pushed prices to a record in many places — Chinese buyers.

Japan Braces for Equity Losses

For Japanese investors, skepticism remains high after a year that has seen $938 billion of stock values vanish. The cost of hedging against declines in the Nikkei 225 Stock Average is near its highest level since February 2016, according to three-month options data. The gauge’s 10 percent slide in December worsened its first annual slump since 2011. Record stock-market purchases by the Bank of Japan in 2018 did nothing to halt the rout as concerns over global growth amid Federal Reserve tightening and a trade conflict between the U.S. and China took over. Both the Topix index and the Nikkei 225 plunged into bear territory last month, with the former hitting a two-year low on Christmas Day. Japanese shares saw their biggest market-value loss in a decade last year.

What we’ve been reading

This is what caught our eye over the last 24 hours.

  • The global property-market slump spreads through Asia. 
  • The biggest-ever pharma deal propels Bristol-Myers to no.1 in the cancer market.
  • Trump took credit for soaring stocks. Should we blame him for the plunge?
  • Market veterans have three theories on the FX flash crash.
  • China wants more foreign buyers for its sovereign debt.
  • Apple priced itself out of a shrinking Chinese smartphone market.
  • Bad news is once again bad news for investors.

©2019 Bloomberg L.P.