Risk-off across the board
Manufacturing data on tap
Nikkei 2.14% Dax -2.22%
UST 10Y 0.61%
Asia and the EU
GBP UK Manufacturing PMI 32.6
North America Open
USD ISM Manufacturing 10:00
Markets were markedly lower on the first day of May weighed down by disappointing results from Amazon and Apple and a general sense of profit-taking after a strong rebound in the month of April.
In North America, yesterday Amazon announced that the company was allocating $4 Billion against COVID-19 expenses and although it had a banner quarter, investors balked at the high price tag of accomodating the business to new lockdown realities and sent the stock lower in aftermarket trade. Apple for its part tried to assuage investors with a stock buyback and some reassuring data points that April hardware business appeared to have stabilized after a sharp dropoff in March but in the end, it failed to provide guidance for the first time in years and that in turn spooked investors.
The two big tech heavyweights which account for a significant portion of US indices weighed on SP500 and especially Nasdaq keeping futures lower by 2% overnight. The US open may see further profit-taking ahead of the weekend as some specs may want to lock in the profits from the massive rebound in the past two weeks.
Now that major economies begin to slowly re-open their economies the gradual grinding rebound in business activity will likely provide a sharp contrast to the V-shaped fantasies imagined by most market participants and will likely cause a new wave of selling in equities.
In FX land the action was muted, with many European bourses quiet due to the May Day holiday. The EURUSD continued its ascent higher, no doubt taking many shorts by surprise, as it now eyes the psychologically key 1.1000 level. There were many attempts to explain the unexpected move in the pair, but perhaps the simplest reason is the divergence in monetary and fiscal policies between the EZ and the US. Although both regions are trying to maintain expansionary posture, the massive monetary and fiscal spend in the US is far greater and is starting to perhaps weigh on the dollar.
One other factor that could be hurting the buck was casual speculation yesterday that the US could renege on its debt obligation to China. Larry Kudlow quickly squashed those rumors, but the fact that they circulated suggests that perhaps such policy action was considered. If there is even an iota of truth to such speculation than it casts a very dark shadow over the dollar going forward. Any tampering with the “full faith” part of US credit – even for foreign policy purposes – could create a massive crisis of confidence in the buck. Generally, such ideas would be well outside the normative function of the market but given Trump administration’s constant flaunting of societal norms it is not out of the realm of possibility that the economic cold war against China could lead to a currency crisis and the strength of the EURUSD may be starting to reflect that possibility.