Updated January 15, 2019 08:41:05

Photo: China's economy has shown further signs of weakening as a consequence of US tariffs. (Reuters)

The world's second largest economy is displaying signs of weakening, sparking a negative reaction on global markets.

China reported that its exports dropped 4.4 per cent in December, its biggest monthly fall in two years — while its imports plunged 7.6 per cent, its steepest decline since July 2016.

Furthermore, in 2018 China posted its biggest trade surplus with the United States on record, which could prompt US President Donald Trump to turn up the heat on Beijing in their bitter trade dispute.

Softening demand in China is being felt around the world — with slowing sales of goods from smartphones to automobiles — prompting Apple to issue a rare profit warning in recent weeks.

Fears of slowing global economic growth led to a risk-averse mentality in equity markets overnight.

European markets finished in negative territory, with moderate losses for Frankfurt (-0.3pc), Paris (-0.4pc) and London (-0.9pc), with technology stocks being among the weakest performers.

Tech falls, while Citi surges

Wall Street closed in the red, with the Dow Jones index falling 87 points, or 0.4 per cent, to 23,909.

The benchmark S&P 500 slipped 0.5 per cent to 2,583, with nearly every sector posting losses, except financials.

The tech-heavy Nasdaq index lost 0.9 per cent to 6,906.

US markets were pulled down, in particular, by tech-related stocks Apple, Netflix and Alphabet (Google's parent company) — which fell by more than 1.2 per cent each.

However, the S&P financial index was boosted by Citigroup, the first US bank to report its fourth-quarter results, as earnings season began.

The bank's stock jumped 4.1 per cent to $US58.93, as lower expenses offset a drop in quarterly revenue.

Citigroup said its quarterly profit rose to $US4.2 billion (or $US1.61 a share) beating analysts' expectations by almost 4 per cent, and forecast that it would earn an extra $US2 billion in revenue from lending activities this year, compared to 2018.

Adding to the downbeat mood was a partial government shutdown, which entered its 24th day, making it the longest shuttering of federal agencies in US history.

In addition, corporate earnings growth is expected to have slowed significantly since last year.

Analysts expect S&P 500 companies to post a 14.3 per cent growth in fourth-quarter earnings.

This would be much lower than the 25 per cent growth rate recorded in the first three quarters of 2018, as they received a boost boost from the Trump administration's corporate tax cuts — a "sugar hit" which has since faded.

Slow start for Australian shares

Despite the weak lead, the Australian share market is expected to open slightly higher. ASX futures are pointing to an early gain of 0.1 per cent.

The Australian dollar slipped to 71.97 US cents at 7:30am (AEDT). It was also weaker at 55.9 British pence and 62.7 euro cents.

The pound briefly rose to a two-month high, even though British parliament is almost certain to vote down UK Prime Minister Theresa May's unpopular Brexit deal on Tuesday (London time).

Meanwhile, the price of oil fell sharply overnight with Brent crude down 2.2 per cent to $US59.15 per barrel, in reaction to the weak Chinese economic data.

ABC/Reuters

Topics: business-economics-and-finance, markets, stockmarket, currency, australia

First posted January 15, 2019 07:44:45