The plunge in crude oil dragged down global stocks and risk aversion lifted yen higher. WTI crude oil extended recent down trend and barely held on to 55 level. DJIA reversed initial gain and ended the day -100 pts lower, or -0.58%, to close at 17180.84. S&P 500 also lost -12.7pts or -0.63% to close at 1989.63. Asian equities followed with Nikkei 225 trading down -320 pts, or -1.9% at the timing of writing. Yen extended recent rebound on risk aversion with EUR/JPY and GBP/JPY breaking last week's low. USD/JPY is also weak and is pressing last week's low of 117.43.US Dollar extended recent rise against commodity currencies but remains in range against European majors.
Sentiments were also weighed down by weak economic data from China. The HSBC China PMI manufacturing dropped to 49.5 in December, below expectation of 49.7. That's also the first contraction reading in seven months. Looking at the details, the new orders sub-index dropped to 49.6, the first contraction since April. Output also stayed below 50. HSBC economist noted that "domestic demand slowed considerably," and "the manufacturing slowdown continues in December and points to a weak ending for 2014."
In Eurozone, ECB governing council member Ewald Nowotny said that "we must assume that in the first quarter of 2015, the inflation rate in the eurozone will most likely decrease once again." He noted that "interest rate policy has reached a lower zero bound" and he didn't see "the possibilities for further interest-rate cuts. ECB could have to buy sovereign bonds if inflation stays low. Another governing council member Ignazio Visco also said that "If new inflation figures confirm the persistence or even the worsening of the risks to price stability in the euro area, then it would be necessary to start rather quickly further interventions to buy bonds on a large scale."
Looking ahead, the economic calendar is rather busy today. Eurozone will release PMIs, trade balance and German ZEW. UK will release CPI and PPI. Canada will release manufacturing shipments while US will release housing starts and building permits.