The Market Today
Tensions Increase in U.S.-China Rhetoric
by Craig Dismuke, Dudley Carter
Coronavirus Chartbook (Click Here) – Updated by 9:00 a.m. CT
March Business Investment Report Finalized: The March Factory Orders report is scheduled for release at 9:00 a.m. CT. The report will provide a finalized look at business investment in equipment for the month of March. The initial data were surprisingly resilient, one of the few areas that remained resilient in March.
Jobs Data Likely to Show Previously Unimaginable Labor Contraction: The focus this week is expected to be April employment report on Friday. Economists currently expect the economy lost 21 million payrolls with the unemployment rate rising to 16%.
Airlines Crash as Buffet Sells: May’s rough start has continued as Friday’s weakness for U.S. equities worked its way around the globe on Monday with investors finding plenty to worry about scattered among the weekend headlines. The major U.S. airline stocks were down sharply ahead of U.S. trading after Warren Buffet said at Saturday’s annual shareholder meeting that Berkshire Hathaway had sold its entire portfolio of airline companies. More broadly, Buffet “Never bet against America” when asked about chances of recovering from the recession, but said his company hasn’t put record cash holdings to work “because we don’t see anything that attractive to do.”
U.S.-China Tensions Heat Up: On Sunday, uneasiness grew as President Trump signaled again he believes the virus escaped from a Chinese lab and said his administration would release a report to support its case. Also on Sunday, Secretary of State Pompeo said there is “a significant amount of evidence” to back the claim. A Reuters report Monday quoted another official with the State Department saying the U.S. is “turbo-charging [an] initiative” to make the U.S. less reliant on China’s supply chain. Tensions were reignited last week after President Trump said Thursday that tariffs could be used against China for its mishandling of the virus outbreak.
More Recessionary Data: Several April PMIs from smaller Asian countries released Monday provided more evidence the outbreak has hurled the global economy into a deep recession. The first look at Hong Kong’s first quarter GDP report showed a 5.4% QoQ contraction, worse than the 1.7% decline expected. It was a similar story in newly-released PMI data for smaller European countries and a broad measure of confidence for the Eurozone failed to recover in May as economists had hoped. Following Friday’s holiday, Europe’s Stoxx 600 returned Monday with a 2.4% decline. U.S. futures had posted more-modest declines at 7:30 a.m. CT with contracts on the S&P 500 off 0.6%. Treasury yields have moved after initially declining with the 2-year yield unchanged at 0.19% and the 10-year yield up 1.7 bps to 0.63%.
ICYMI – May 1, 2020 Weekly Market Recap: Despite capping their best month since 1987 in April, stocks fell last week as investors balanced first steps at reopening some economies, major central banks sounding willing to do even more, confirmation of record economic contraction, and hopes for a virus treatment. Several U.S. states began the first phase of restarting activity and some European countries continued to ease out from under lockdowns. The Bank of Japan and European Central Bank added to accommodation at their meetings while the Fed signaled it’s in no hurry to remove monetary support. Additionally, the Fed expanded a couple of its liquidity facilities. Those decisions were surrounded by record economic contractions in Europe and at 4.8% contraction in the U.S., the steepest since the Great Financial crisis. Several reports for April showed further deterioration and 3.84 million Americans filed for unemployment, taking the six-week total to more than 30 million. In other news, there were positive reports about a possible treatment for the virus and the SBA’s PPP was restarted Monday. Click here to view the full recap.
ICYMI – April 2020 Monthly Review: Equity markets recovered sharply in April as unprecedented stimulus efforts, signs of economic restarts, and hopes for a drug treatment led investors to look past clear signs of historic economic destruction. Click here to see the full review.