US pre-open: Futures point to heavy losses with China data set to weigh

US stocks looked set to start the new year firmly in the red on Monday, tracking weak sessions in Asia and Europe, following disappointing Chinese manufacturing figures.

At 1210 GMT, Dow Jones Industrial Average futures were down 1.8% while S&P 500 futures were 1.7% weaker.

“With futures pointing substantially lower we could be in for a tough afternoon,” said James Hughes, chief market analyst at GKFX.

The latest purchasing managers’ index from Caixin showed a drop to 48.2 in December from 48.6 the previous month, falling short of expectations for an increase to 48.9.

The Caixin PMI is a closely-watched gauge of nationwide manufacturing activity focusing on smaller and medium-sized companies that aren’t covered by the official data.

The figures led to a sharp fall in Chinese markets, with the benchmark CSI300 share index tanking 7%, sparking a trading halt for the rest of the day.

The trading halt marked China’s first ever use of the circuit-breaker mechanism, under which a 5% move in either direction from the CSI 300 index’s previous close sparks a 15-minute trade suspension across China’s stock indexes if it occurs before 1445 local time.

A 5% move after that will prompt a trade suspension until the market closes, while moves of 7% will lead to a halt for the rest of the day.

European stocks suffered heavy losses across the board, with basic resources taking the biggest hit as the sector is highly dependent on demand from China.

Heightened geopolitical tensions added to the downbeat tone, as Saudi Arabia severed diplomatic ties with Iran after protesters stormed the Saudi embassy in Tehran following the execution of Shiite cleric Nimr al-Nimr on Saturday.

Fellow Gulf Cooperation Council member Bahrain also announced on Monday that it will cut ties with Iran.

The news boosted oil prices, with West Texas Intermediate up 1.4% to $37.56 a barrel and Brent crude 2.3% firmer at $38.12.

“The market is in risk off mode as we have started the new year, with China causing concerns as well as the war of words between Saudi Arabia and Iran,” said Hughes.

Tesla Motors skids as delivery numbers disappoint

In corporate news, electric car maker Tesla Motors fell in pre-market trading after its fourth quarter delivery numbers out on Sunday disappointed.

Pharmaceutical company Baxalta was a high riser, however, amid speculation that London-listed Shire is close to completing a takeover of the group.

In currencies, the dollar was 0.3% lower versus the pound, 0.6% weaker against the euro and 1.2% lower versus the yen.

Still to come on the macroeconomic calendar, US ISM manufacturing data is due at 1500 GMT, along with construction spending figures.