Equities and Oil Prices Dragged Down by Weak Chinese and US Data

US stocks and oil prices declined after disappointing Chinese economic data renewed concerns over a global slowdown.  Data showed China’s manufacturing sector contracted at its fastest pace in three-and-a-half years in January, missing analyst expectations, and remaining below the contraction/expansion line of 50 for the sixth consecutive month.  China’s non-manufacturing PMI also declined, but remained in expansionary territory, which underscores the relative strength of the services sector that has been an important source of growth and jobs for the world’s second largest economy vis a vis softer manufacturing.  The Shanghai Composite Index declined nearly 2% while WTI crude was down 6% in response.

Mediocre US economic data also added to the cautious tone for investors to start the trading week.  Data showed US consumer spending, which accounts for over two-thirds of US economic activity, was unchanged in December, and manufacturing activity continued to contract in January.  The consumer spending number was especially disappointing because personal incomes rose by 0.3%, beating analyst expectations.  Disposable income grew 3.5% in 2015, the most in nine years, but Americans opted to save rather than spend, which increased the savings rate to a three year high of 5.5%.

Despite the pullback in risk assets, Treasury yields and swap rates rose 3-4 bps across the curve off the back of profit-taking ahead of this Friday’s all-important nonfarm payrolls report.  10-year notes remain below the key 2% threshold, currently trading at 1.95%.

Today’s Iowa caucus results due out this evening will give us the first real indicator on voters’ convictions regarding the November elections, but are not expected to have much of any market impact at this point, as there is just too much time and too many twists and turns left to play out, to really make any market calls off these first state voting results.