(Corrects paragraph 9 to show the spread between two- and 10-year yields had recently shrunk to the smallest since 2007 and is currently not at that level)
* Futures drop: Dow 1.17 pct, S&P 1.19 pct, Nasdaq 1.89 pct
By Shreyashi Sanyal
Jan 2 (Reuters) – U.S. stock index futures sank on Wednesday, offering no respite as Wall Street comes off its worst year in a decade, as weak data in Asia and Europe confirmed fears of a global economic slowdown, while the U.S. government shutdown dragged on.
S&P 500 e-minis and Dow e-minis were down 1.2 percent at 7:16 a.m. ET, while Nasdaq 100 e-minis slid 1.9 percent.
China’s factory activity contracted for the first time in 19 months in December, hit by the Sino-U.S. trade war, the private Caixin/Markit PMI survey showed, with the weakness spilling over to other Asian economies.
While Euro zone manufacturing activity barely avoided contraction, a drop for the fifth month took the reading to its lowest since February 2016.
The grim readings come ahead of the closely watched U.S. manufacturing survey on Thursday, payrolls data on Friday and the U.S. earnings season later this month, which is expected to show corporate profit shrunk in the October-December quarter.
All 29 of the 30 Dow Jones Industrial Average that were trading premarket were lower, with the blue-chip index set to tumble more than 350 points at the open.
The high-growth FAANGS — Facebook Inc, Apple Inc , Amazon.com Inc, Netflix Inc and Alphabet Inc — were down between 1.4 percent and 2.1 percent.
“Investors are clearly concerned about the growth in 2019 and the lack of confidence is keeping them on the sidelines or they are feeling safer by parking their capital in risk-off assets,” said Naeem Aslam, chief market analyst at Think Markets UK Ltd in London.
A low appetite for risk sparked demand for U.S. Treasuries, with yields on ten-year debt diving to a 12-month low of 2.6470 percent. The spread between two- and 10-year yields in turn had recently shrunk to the smallest since 2007, a flattening that has been a portent of recessions in the past.
Last year, the Dow, S&P 500 and Nasdaq recorded their biggest one-year percentage declines since 2008, and many of the concerns, mainly to do with a slowing economy, have carried over into this year.
One of them has been the trade dispute between the United States and China, which accounts for a sizeable portion of revenue for many U.S. companies. Investors are keenly tuned into updates on the ongoing talks as a March 1 tariff-ceasefire deadline nears.
While U.S. President Donald Trump said last weekend that talks were progressing well, many analysts doubt the two countries can bridge their differences and reach a comprehensive trade deal in so short a negotiating window.
Meanwhile, the U.S. Congress is set to reconvene with no signs of a workable plan to end a 12-day-old partial shutdown and Trump not budging on his demand for $5 billion to fund a border wall. A Democrat plan to approve a two-part spending package does not include these funds.
While the shutdown is expected to have little effect on economic or corporate activity, the longer it lasts, the more it will weigh on an already weak investor sentiment. (Reporting by Shreyashi Sanyal in Bengaluru; Additional reporting by Medha Singh; Editing by Shounak Dasgupta)