Here’s Why Markets Are Starting 2019 With a Whimper

After a poor 2018, Asian markets began 2019 on a bleak note, thanks to a private survey that pointed to contraction in the Chinese manufacturing sector last month.

A Caixin/HIS Markit survey, the results of which were published Wednesday, showed a fall in the analysts’ Purchasing Managers’ Index (PMI) indicator from 50.2 in November to 49.7 in December. “Though only slight, it was the first time that the health of the sector worsened since May 2017,” they noted in their report.

The survey also indicated the first fall in new orders received by Chinese manufacturers since June 2016, though it did also suggest a slight uptick in production. The culprits? Weakening domestic demand, as well as “subdued external demand” thanks to the ongoing trade war between the U.S. and China.

The Shanghai Composite Index fell on Wednesday by 1.15%, and Hong Kong’s Hang Seng by 2.77%. The Australian Securities Exchange fell by 1.71%. Japan’s markets were closed for a holiday.

Over in Europe, the Stoxx 600 fell by 1% — likely also affected by the continuing contraction in Italian manufacturing — and U.S. futures indicated drops of 1.52% for the Dow Jones, 2.24% for the Nasdaq and the 1.52% for the S&P 500.

The U.S. and China are currently participating in a 90-day truce of sorts, in that they are not ramping up existing tariffs any further, while they conduct talks on settling their trade dispute. Other factors that are dampening the Chinese economy include the administration’s efforts to reduce debt risks, and its moves to reduce industrial pollution.