Trump Reignites The Possibility Of A Trade War With China

May 01 20, 11:09 GMT

Notes/Observations

Numerous market closures in Asia and Europe kept participation at a minimum
Some risk aversion percolating after Trump mentioned possible tariff to punish China’s handling of the coronavirus outbreak; US Treasury 10-year yield lower by 5bps

Asia:

Australia Apr Final PMI Manufacturing: 44.1 v 45.6 prelim (confirms 2nd month of contraction and a record low)
Japan Apr Final PMI Manufacturing: 41.9 v 43.7 prelim (confirms 12th month of contraction and lowest since Apr 2009)
South Korea Apr Trade Balance registers its 1st deficit since 2012 Coronavirus:
Total Global cases 3,257,088 (+2.0%); Total deaths: 233.4K (+2.5%)

Europe:

German Chancellor Merkel announced some relaxation to some lockdown measures after reopening small shops this week and to revisit lock down measures during week of May 4th. She stressed that Germany needed to drive down infection rates even further and ensure that the country did not fall back into crisis

Americas:

President Trump: Seen evidence that the coronavirus originated in the Wuhan Institute of Virology in China. China either chose not to or was unable to contain the virus; the China trade deal was now secondary to what China did with the virus; could respond with new tariffs on China (Note: declined comment on whether he held Pres Xi responsible for misinformation from China)
President Trump said to be considering blocking a US gov’t pension fund from investing in Chinese equities on national security grounds
White House officials said to be considering plans to punish or demand financial compensation from China over handling of coronavirus. Said to have discussed having the US cancel part of its debt obligations to China -White House economic adviser Kudlow denied reports about US canceling debt obligations to China
Bank of Canada Gov Poloz: downside risks are far more dire than the upside ones – New Bank of Canada Governor to be appointed on May 1st. Two names in the hat: Tiff Macklen & Carolyn Wilkins are considered most likely candidates

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 closed, FTSE -2.3% at 5,768, DAX closed, CAC-40 closed, IBEX-35 closed, FTSE MIB closed, SMI closed, S&P 500 Futures -1.8%]
Market Focal Points/Key Themes: Most indices closed due to holiday; UK FTSE 100 opened significantly lower and remained lower as the session progressed; follows sharp declines in Asia; US futures trading lower after President Trump threatens tariffs on China; earnings expected in the upcoming US session include Hunstman, Aon and ExxonMobil

Equities

Consumer discretionary: Greggs GRG.UK -5.6% (delays store reopenings), EasyJet EZJ.UK -7.1% (reportedly Citadel boosts short position)
Financials: Royal Bank of Scotland RBS.UK +3.0% (results), Aviva AV.UK -1.7% (reportedly Unicredit mulling termination of agreement)
Healthcare: Reckitt Benkiser RB.UK +0.6% (analyst action)
Materials: Glencore GLEN.UK -5.5% (analyst action)

Speakers

ECB’s Lane (Ireland, chief economist) reiterated General Council stance that that could adjust all instruments and increase its Pandemic bond buying fund (PEPP). ECB to secure price stability under all circumstances.
ECB published various scenarios of the coronavirus outbreak impact on growth. Forecasted 2020 GDP between -5.0% to -12% (contraction) and saw 2021 GDP growth between 4.0-6.0%. It noted that the Euro Area GDP might fail to achieve 2019 growth levels until 2022
Spain Econ Min Calvino stated that 2020 GDP seen -9.2% (contraction) and 2021 GDP growth at 6.8%

Currencies/Fixed Income

USD was slightly weaker against the major pairs. The greenback weakness continued after Thursday sell-off that was attributed to end-of-month portfolio rebalancing
EUR/USD was firmer by 0.2% at 1.0970 area. Dealers noted that the failure of ECB to step up its asset purchase program left some doubts about its commitment to underwrite government borrowing during the coronavirus crisis. However, ECB chief Lagarde left the door to take additional measures in the coming weeks and months if needed.

Economic Data

(PE) Peru Apr CPI M/M: 0.1% v 0.0%e; Y/Y: 1.7% v 1.6%e
(UK) Apr Nationwide House Price Index M/M: +0.7% v -0.3%e; Y/Y: 3.7% v 2.5%e
(AU) Australia Apr Commodity Index: 104.8 v 105.1 prior
(UK) Apr Final PMI Manufacturing: 32.6 v 32.8e (confirms 2nd straight contraction and record low)
(UK) Mar Net Consumer Credit: -3.8ŁB v +Ł0.7Be; Net Lending: Ł4.8B v Ł3.5Be
(UK) Mar Mortgage Approvals: 56.2 v 58.0Ke
(UK) Mar M4 Money Supply M/M: 2.8% v 0.3% prior; Y/Y: 8.1% v 5.1% prior; M4 Ex IOFCs 3-month annualized: 14.0% v 4.6% prior
(DK) Denmark Apr PMI Survey: 38.6 v 46.5 prior

Fixed Income Issuance

Looking Ahead

06:00 (UK) DMO to sell Ł9.0B in 1-month, 3-month and 6-month bills (Ł1.5B, Ł3.0B and Ł4.5B respectively)
06:45 (US) Daily Libor Fixing
07:30 (IN) India Weekly Forex Reserve w/e Apr 24th: No est v $479.6B prior
08:00 (CZ) Czech Apr Budget Balance (CZK): No est v -44.7B prior
08:00 (UK) Daily Baltic Dry Bulk Index
08:30 (CA) Canada Mar MLI Leading Indicator M/M: No est v 0.3% prior
09:30 (CA) Canada Apr Manufacturing PMI: No estv 46.1 prior
09:45 (US ) Apr Final Markit Manufacturing PMI: 36.7e v 36.9 prelim
10:00 (US) Mar Construction Spending M/M: -3.5%e v -1.3 % prior
10:00 (US) Apr ISM Manufacturing: 36.0e v 49.1 prior; Prices Paid: 33.0e v 37.4 prior
11:00 (EU) Potential sovereign ratings after European close (Moody’s on Denmark; Netherlands and Saudi Arabia Sovereign Debt; Fitch on Romania Sovereign Debt