Market Overview: Equities continue to weaken amid fresh data pointing to US slowdown

A raft of downbeat data on the US economy set a negative tone for global equity markets in the wind-down to the Christmas break.

Markets initially shrugged off news that US economic growth in the third-quarter had been revised down to 2 per cent from the 2.2 per cent originally estimated a month ago.

But US shares started to weaken and Treasuries firm after other data showed the slower trend has continued in the fourth quarter.

The Federal Reserve Bank of Philadelphia said its business conditions index, a gauge of the health of the region’s manufacturing sector, fell to minus 4.3 in December after being plus 5.1 in November. The December level was the worst since April 2003.

Although some of the sub-indices showed a better picture, economists pointed out the main index had been in negative territory for three of the last four months.

The Conference Board’s US index of leading economic indicators released earlier also eked out just a 0.1 per cent rise to 138.2 in November – the same lacklustre increase seen in October and sharply down from a 0.4 per cent rise in September. “At this stage, something else must develop, either to give the economy a new jolt of energy to speed it up, or a new snag that could force the economy to slow more,” said board economist Ken Goldstein.

In addition, other data showed applications for jobless benefits rose from 306,000 to 315,000 – roughly in line with forecasts.

By the close of trade in New York, the S&P 500 index was down 0.4 per cent at 1,418.31 while the Nasdaq Composite was 0.5 per cent lower at 2,415.85. The Dow Jones Industrial Average was down 0.3 per cent at 12,421.25.

European shares weakened similarly. The FTSE Eurofirst 300 index dropped 0.15 per cent to 1,479.08.

In Asia, it was a modestly positive session with the Nikkei 225 Average rising 0.2 per cent to 17,047.83.

However, in Thailand the benchmark SET index fell 2.2 per cent to 676.1 as foreign investors continued to sell off shares in the country.

The baht weakened from early gains in a volatile day of trading. The currency was trading at Bt36.50 against the dollar in late trading London time, down 0.6 per cent on the day after earlier reaching an intraday high of Bt35.71.

Pridiyathorn Devakula, the finance minister, underlined his concern over any appreciation of the currency beyond 35 to the dollar.

“We didn’t want it to break through that,” the former central bank governor told Reuters. “If you break 35, you see 34, you can also see 33 and 32.”

Credit Suisse has forecast equities will outperform bonds next year with global economic growth set to only slow from 5.2 per cent to 4.5 per cent.

“Given the global economy has put in another exceptional performance this year, resulting in the strongest three-year period for a generation, it is easy to join the bandwagon of 2007 blues – after all what goes up must come down, right?” its strategy team said.

“Our economists look to another year of solid performance with risks, of course, but next year could surprise to the upside.” Credit Suisse forecast the S&P 500 would rise to around 1,500 from current levels (up about five per cent), the EuroStoxx 600 to 430 (up about 9 per cent) and the Nikkei to 18,000 (up 6.5 per cent).

On commodity markets, West Texas Intermediate crude fell $1.06 to $62.66 a barrel as the mild winter continued in North America.

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