Equity markets closed out last week on a relatively weak note although Europe was shut for the May 1 holiday: the S&P fell 2.8% on Friday as tensions between the US and China escalated. Trump threatened China with tariffs as speculation about the origin and responsibility of the coronavirus pandemic continued. Plus, there was some disappointment on the earnings front: notably, Amazon disappointed due to higher Covid related costs and a lack of guidance from index heavyweight Apple highlighted the uncertainty. Weak April manufacturing ISM data (new orders in particular were weak) further soured investor sentiment. USTs remained resilient over the week with the UST 10-year yield rising 1bps to yield 0.61% at Friday’s close.
Markets are trading with a risk-off tone in this morning’s trading, albeit with Japan and China shut for holidays, as tensions between the US and China continue to mount over the coronavirus outbreak. Trump stated on Sunday: “My opinion is they made a mistake. They tried to cover it, they tried to put it out. It’s like a fire”. He added: “You know, it’s really like trying to put out a fire. They couldn’t put out the fire.” He said the government was compiling a report on the matter which is expected to be “very conclusive”. Clearly, the threat of tariffs in addition to the economic shock from Covid-19 is making markets jittery.
This week, there are a number of data releases from the US although expectations have already been ratcheted down for some grim readings. The April US non-manufacturing ISM release is due out on Tuesday with the consensus looking for a reading of 37.8 down from a reading of 53.5 in March. On Friday, the US April non-farm payroll data will be out with the survey looking for the unemployment rate to rise to 16% up from 4.4% in March and for 21.3m non-farm jobs to be lost. In terms of central bank policy meetings, the RBA and BoE are due to meet on Tuesday and Thursday respectively: investors will be looking to see if the Bank of England scale up the asset purchase program. In Europe, the German court ruling on the legality of the ECB asset purchases is also likely to be watched with interest on Tuesday. Data-wise German factory orders and industrial output are due out on Wednesday and Thursday. But Moody’s review of Italy’s debt which they rate Baa3 due on Friday May 8th is likely to be of more interest with S&P having recently affirmed its rating unchanged at BBB but with a negative outlook and Fitch having downgraded it to BBB- but with a stable outlook last week.