US open: Stocks retreat as China data weighs; Tesla under pressure

US stocks fell in early trade on Wednesday, ringing in the new year in the red as disappointing Chinese manufacturing data undermined sentiment, with Tesla under the cosh.

At 1550 GMT, the Dow Jones Industrial Average and the S&P 500 were down 0.7% at 23,166.41 and 2,489.71, respectively, while the Nasdaq was off 0.5% at 6,604. 12.

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 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. Trump has reportedly invited congressional leaders to a White House briefing on border security on Wednesday.

In corporate news, electric car maker Tesla tumbled 8% as it revealed that it delivered 90,700 vehicles in the fourth quarter, falling short of analysts’ expectations, and announced a $2,000 price cut on its vehicles.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said that for most automotive groups, these would be a very impressive update.

"Almost tripling the number of vehicles you deliver in just one year is no mean feat, and Musk and his team deserve a huge amount of credit. But unfortunately for Tesla shareholders, the market has come to expect Herculean achievements, and sometimes that means the bar is just that little bit too high. Deliveries have fallen short of what some analysts had expected and the shares are suffering as a result.

"Longer term we think the price cut is more concerning - it suggests Tesla customers are perhaps a bit more price sensitive than you might have thought. You can see why Tesla have made the decision - having got the production lines flying the company needs to ensure there’s demand for its cutting edge technology when they make it off the conveyor belt."

On the data front, the seasonally-adjusted IHS Markit final US manufacturing purchasing managers’ index printed at 53.8 in December, down from 55.3 the month before.

This marked a 15-month low amid a weaker rise in new business and the joint-softest expansion in output since September 2017.

Chris Williamson, chief business economist at IHS Markit, said: "Manufacturers reported a weakened pace of expansion at the end of 2018, and grew less upbeat about prospects for 2019. Output and order books grew at the slowest rates for over a year and optimism about the outlook slumped to its gloomiest for over two years. The month rounds of a fourth quarter in which manufacturing production is indicated to have risen at only a modest annualised rate of about 1%.

"Some of the weakness is due to capacity constraints, with producers again reporting widespread difficulties in finding suitable staff and sourcing sufficient quantities of inputs. However, the survey also revealed signs of slower demand growth from customers, as well as rising concerns over the impact of tariffs. Just over two thirds of manufacturers reporting higher costs attributed the rise in prices to tariffs."