Equities fell after new reports showed that the manufacturing industries in the U.S. and Germany weakened in March, fueling concerns of a global slowdown.
The S&P 500 (^GSPC) fell 1.9%, or 54.17 points, as of market close, with the Materials and Industrials sectors leading declines. The Dow (^DJI) sank 1.77%, or 460.19 points, while the Nasdaq (^IXIC) fell 2.5%, or 196.29 points.
U.S. Treasury yields, which move inversely to prices, broadly declined Friday, with the yield on the 10-year note dipping below that of the shorter-term 3-month bill for the first time since 2007 during intraday trading. Buying into Treasurys on the longer end of the curve sent the yield on the benchmark 10-year note as low as 2.416%. Yield curve inversions are widely monitored as potential recessionary signals.
IHS Markit released its preliminary results for the March U.S. manufacturing purchasing managers’ index Friday morning, with the reading falling to a 21-month low of 52.5. This was below expectations for 53.5, and February’s reading of 53. Service-sector PMI slipped to 54.8 from 56, and came in below expectations of 55.5. Each reading, however, held above the key level of 50, indicating expansion.
“A gap has opened up between the manufacturing and service sectors ... with goods-producers and exporters struggling amid a deteriorating external environment and concerns regarding the impact of trade wars,” Chris Williamson, chief business economist at IHS Markit, said in a statement Friday. “The survey is consistent with the official measure of manufacturing production falling at an increased rate in March and hence acting as a drag on the economy in the first quarter.”
IHS Markit’s U.S. readings came following similarly disappointing data overseas. Germany’s key manufacturing sector contracted for the third consecutive month in March, according to an advance reading from IHS Markit’s monthly survey. The index for the sector slid to 44.7, the lowest reading since 2012 and below consensus estimates of 48. Readings below 50 indicate contraction.
The services sector in Germany, however, remained in expansionary territory with a reading of 54.9. This was slightly ahead of expectations of 54.9 but at the lowest level in two months.
New export orders for German manufactured goods fell for the seventh straight month and at their fastest pace since 2012. IHS Markit attributed this to weaker demand in the auto sector and “delayed decision-making” due to “uncertainty” over Brexit and U.S.-China-trade relations.
The London-based research firm’s latest reading on Germany comes as the European Central Bank earlier this month unveiled a new program to provide cheap long-term loans to banks across the EU, suggesting central bankers have been cognizant of weakness among major eurozone economies.
The euro fell against the dollar (EURUSD=X) to $1.13 following the disappointing reading from Germany, the EU’s largest economy. The yield on the benchmark 10-year German government bonds, or bunds, turned negative for the first time since 2016 Friday morning.
German manufacturing contracted at the quickest pace since 2012 (Getty Commercial)
Elsewhere, European Union leaders on Thursday agreed to provide the UK with a Brexit extension beyond the original March 29 deadline. Under terms of the agreement, Brexit will take place May 22 if prime minister Theresa May can convince Parliament to accept her exit plan, which members have now voted down twice. The Brexit deadline will be April 12 if May fails to convince lawmakers to ratify her plan.
The pound edged up against the dollar (GBPUSD=X) to above $1.32 Friday afternoon ET.
STOCKS
Nike (NKE, -6.61%) shares extended declines after the company reported weak sales in its largest North American geographic segment for the fiscal third quarter. Domestic sales of $3.81 billion grew 7% from the year-ago quarter, but came in below the $3.85 billion analysts were expected. Total adjusted earnings for the quarter were 68 cents per share on revenue of $9.6 billion, versus expectations of earnings of 65 cents on sales of $9.65 billion. Net income of $1.1 billion for the fiscal-third quarter reversed as loss of $931 million in the year-ago period, and gross margin expanded 130 basis points to 45.1%.
Tiffany (TIF, +3.17%) reported weak results for the holiday quarter as the luxury jewelry-seller’s total comparable same-store sales came in flat during the fourth-quarter from the year-ago period. Adjusted earnings of $1.67 were 7 cents better-than-expected, and net sales of $1.32 billion were in-line with expectations. Tiffany said it expects net sales to decline in the first half of the year due to lower foreign tourism spending, but sees an increase in net sales in the low-single-digits for the full-year fiscal 2019. The stock rebounded after falling in early trading.
ECONOMY
Existing home sales surged to a seasonally adjusted annual pace of 5.51 million in February, the National Association of Realtors said on Friday. This was 11.8% higher than January’s reading, which was downwardly revised to 4.93 million. February’s month-over-month gain was the largest since December 2015.
“A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound,” Lawrence Yun, NAR’s chief economist, wrote in a statement.
