US pre-open: Stocks seen down as China manufacturing data dents risk appetite

US stocks looked set for losses on the first day of trading of 2019, taking their cue from a downbeat Asian session as disappointing Chinese manufacturing data dented risk appetite.

At 1130 GMT, Dow Jones Industrial Average and S&P 500 futures were down 1.4%, while Nasdaq futures were 2.1% weaker, having suffered their worst yearly drop in 2018 since the financial crisis of 2008.

Oanda analyst Craig Erlam said: "The year has already got off to a disappointing start, with risk aversion weighing heavily across asset classes as the trend that battered confidence in the final month of last year carries over into this. Naturally, it was a rather quiet end to the year with nothing really changing on the fundamental landscape but unfortunately during that time of reflection, investors found no reason to be less pessimistic.

"We saw a small rebound - primarily in the US - in the final days of the year but that move looks to have exhausted itself quite quickly. Trump - who always has one eye on the stock market - tried to offer some words of optimism on talks with China, tweeting that ‘big progress is being made’ towards a comprehensive deal but that seems to have been taken for nothing more than an attempt to offer encouraging words at a time when no progress is being made on re-opening government and markets are slumping."

China’s private Caixin/Markit manufacturing purchasing managers’ index released earlier showed a drop to 49.7 in December from 50.2 in November. This was the first contraction in 19 months and missed expectations for a reading of 50.1. The figures confirmed a trend seen in the official PMI released on Monday, which slipped to 49.4 in December - its weakest level since early 2016.

The weak Chinese data overshadowed news overnight that US President Trump was reaching out to Congress to help end the partial government shutdown. According to reports, Trump has invited the eight top Republican and Democratic lawmakers from both houses of Congress to the White House to discuss border security.

Energy shares were likely to be under the cosh as oil prices fell amid worries about oversupply. Erlam said the risk-off environment was weighing on oil, with West Texas Intermediate down 1.1% at $44.92 a barrel and Brent crude off 1.2% at $53.14.

"Both are around 40% off their highs of only three months ago and continue to look vulnerable, albeit to a lesser extent than they have in recent months, he noted.

On the data front, Markit’s manufacturing purchasing managers’ index is at 1445 GMT.