Market Reports

Summary and Price Action Rundown

Global risk assets are rallying this morning despite heightened US-China tensions, as economic reopening and headlines regarding vaccine trials boost market spirits. S&P 500 futures point to a 1.9% higher open, which would extend last week’s solid 3.2% gain that was spurred by rising optimism over economic reopening and redoubled pledges of additional extraordinary monetary support from Fed Chair Powell. Year-to-date downside for the index is at 8.5% and the decline from February’s record high is 12.7%. Equities in the EU are moderately higher while Asian stocks jumped overnight as Hong Kong shares staged a recovery (more below). Longer-dated Treasury yields are edging higher, with the 10-year yield at 0.69%, while the dollar is depreciating as safe-haven demand wanes in today’s upbeat trading. Crude oil is resuming its recovery uptrend, with Brent back above $36 per barrel.

Hopes Over Economic Reopening and Vaccine Progress Spur Further Equity Upside

Last week’s solid US equity market rebound is set to continue today, underpinned by optimism over easing lockdowns, recovering economic activity, and more encouraging news of progress toward a vaccine. Over the weekend, biotech company Novavax announced an expansion of their vaccine trials into the first human studies. Meanwhile, Moderna released more data regarding their ongoing antibody trials. For context, White House virus expert Dr. Fauci in an interview on Friday opined that the data from biotech company Moderna on their vaccine trials “is really quite promising” and that it is a reasonable to expect, barring unforeseen setbacks, a vaccine to be ready for deployment by December 2020 or January 2021. For context, US equities were whipsawed last week as Moderna’s upbeat disclosures about their progress toward a vaccine propelled stocks higher on Monday but reports that the data was insufficient to draw any supportable conclusions set stocks back on Tuesday. And headlines this morning indicate that Merck is also engaging in efforts toward developing a vaccine. Meanwhile, reports over the weekend focused on reopening beaches and large crowds as lockdown restrictions ease unevenly nationwide.

US-China Tensions Percolate as Hong Kong Protests Resume

Relations between Washington and Beijing have continued to deteriorate over recent weeks, with Congress pushing legislation to counter China on a variety of fronts, President Trump turning up the rhetorical heat, Chinese media threatening retaliation, and pressure rising in Hong Kong. However, concerns have been tempered by reports that the protests in Hong Kong featured relatively smaller crowds than prior rounds of demonstrations and draw a standard police response. Meanwhile, Chinese officials are downplaying the impact of the law on the territory, pledging that judicial independence will continue. Hong Kong’s benchmark Hang Seng equity index steadied yesterday and gained 1.9% today. For context, the Hang Seng plunged 5.6% last Friday following the news that China will impose a stricter security regime on the territory, overriding the local legislature. Over the weekend, White House National Security Adviser O’Brien suggested that Beijing’s move falls afoul of the Hong Kong Human Rights and Democracy Act, which was signed into law last year and requires the State Department to certify that Hong Kong is sufficiently autonomous from China for the city to qualify for favorable trading terms with the US. Two Senators have introduced an even more aggressive bill to sanction Chinese entities and individuals that take part in enforcing the new security law in Hong Kong and punish banks that do business with them. Lastly, the Commerce Department placed an additional 33 Chinese entities on their trade blacklist over the weekend, drawing a stern response but no overt retaliation from China, though Chinese state media has indicated that Beijing could reciprocate by placing US firms on Beijing’s “unreliable entities” list.

Additional Themes

Boston Fed Signals Impending Start of Main Street Lending Program – In a television appearance on Sunday, Boston Fed President Rosengren indicated that the Fed’s Main Street Lending Program (MSLP) will begin buying loans within the next two weeks. The $600 billion program is designed to provide access to credit for small and medium-sized businesses, with the Fed expanding the eligibility criteria a late last month to include those with up to 15k employees and $5 billion in annual revenue. Some analysts have opined that the revisions to the program are designed to include more energy companies, which traditionally carry significant debt and are currently facing a low oil price environment. Unlike Congress’ Paycheck Protection Program, MSLP loans are not meant to be forgiven and do not have any hard requirement to spend the money maintaining headcount.

Economic Data Hints at Rebound – German exporter confidence for June missed expectations but rose from -23.1 the prior month to -18.9. Later today, the Conference Board will publish its US consumer confidence index for May, which is also expected to show improvement.

Summary and Price Action Rundown

Global risk assets are trading with a cautious tone this morning amid heightened US-China tensions, with Hong Kong in the spotlight as China prepares to clamp down on the territory. S&P 500 futures indicate a 0.2% lower open, which would further pare this week’s solid 3.0% gain, spurred by rising optimism over economic reopening and redoubled pledges of additional extraordinary monetary support from Fed Chair Powell. Year-to-date downside for the index is at 8.7% and the decline from February’s record high is 12.9%. Equities in the EU are also moderately lower while Asian stocks underperformed overnight as Hong Kong shares plunged (more below). Longer-dated Treasury yields are edging lower, with the 10-year yield at 0.65%, while the dollar is rising as growth concerns weigh on a number of peer currencies. Crude oil is reversing a portion of its sharp uptrend from recent lows, with Brent back below $35.

US-China Tensions Intensify Further Over Hong Kong

Relations between Washington and Beijing have deteriorated sharply this week, with Congress pushing legislation to counter China on a variety of fronts, President Trump turning up the rhetorical heat, Chinese media threatening retaliation, and pressure rising in Hong Kong. The benchmark stock index for Hong Kong plunged 5.6% overnight, falling to its lowest level since early April on the news that China will impose a stricter security regime on the territory, with the decision being finalized at this week’s National People’s Congress in Beijing. Democracy activists in the city are planning to resume street protests this weekend. President Trump made oblique comments on the impending crackdown, saying “if it happens, we’ll address that issue very strongly.” Meanwhile, two Senators introduced a bill to sanction Chinese entities and individuals that take part in enforcing the new security law in Hong Kong and punish banks that do business with them. For context, the Hong Kong Human Rights and Democracy Act, which was signed into law last year, requires the State Department to certify that Hong Kong is sufficiently autonomous from China for the city to qualify for favorable trading terms with the US. Tensions had already been rising after the US Senate passed a bill earlier this week with broad bipartisan support which could result in the eventual delisting of Chinese companies currently trading on US stock exchanges unless they pledge that they are not controlled by Beijing and submit an audit for inspection by the Public Company Accounting Oversight Board within three years. Speaker Pelosi said she would study the bill and analysts suspect that it will pass the House over the coming weeks and be signed by President Trump. Shares of US-listed Chinese tech giants sold off again yesterday despite the relatively lengthy timeline for any enforcement actions (three years at least). A report indicated that search engine giant Baidu is considering leaving the Nasdaq in favor of an Asian bourse listing.

Dollar Rises as Peer Currencies Sink on Growth Fears

After spiking higher amid the onset of the Covid-19 pandemic in March, the dollar has remained remarkably stable over the past two months, but analysts remain concerned that another leg higher could add to global deflationary pressures. Though the dollar remains in the middle of its two-month trading range against a broad basket of global currencies and a gauge of currency volatility has eased to its lowest level since early March, today’s appreciation demonstrates how weakness among its peers can lift the greenback. The renminbi declined 0.3% overnight versus the dollar, as traders cited the decision by China’s government to scrap its GDP target in light of great uncertainty due to the coronavirus. The renminbi is now at its weakest level versus the dollar since last October, during the height of US-China trade tensions. Meanwhile, the Australian dollar lost 0.5% overnight against its US counterpart as rating agency Fitch cut the country’s credit rating outlook from stable to negative, although it remains at the top tier AAA for now. Lastly, the UK pound is down 0.3% versus the dollar after April retail sales cratered 18.4% year-on-year, with futures markets continuing suggest that the Bank of England cuts interest rates into negative territory over the next year.

Additional Themes

Oil Prices Retreat Amid China Growth Concerns – Brent crude prices are retreating this morning from their highest level since early March as traders cite the Chinese government’s unexpected move to scrap its growth target, which late last year had been set at around 6%, down from 6-6.5% in 2019. The ongoing pickup in Chinese oil demand has been considered an important catalyst for the rally and an encouraging harbinger for a broader recovery in global energy usage as lockdowns ease in the US and EU, though analysts caution that high prices could also lift supply.

Looking Ahead – Next week, the holiday-shortened US calendar still features a number of major economic releases, featuring first quarter GDP and an array of April data, including new home sales, personal income and spending, durable goods orders, and PCE prices (the Fed’s preferred gauge of inflation pressure). For all our US readers, we hope you enjoy a pleasant Memorial Day weekend

Summary and Price Action Rundown

Global risk assets are pausing their ongoing rally this morning amid heightened US-China tensions while investors await more dismal US economic data and Federal Reserve communications. S&P 500 futures point to a 0.5% lower open, which would pare this week’s solid 3.8%, spurred by rising optimism over economic reopening and redoubled pledges of additional extraordinary monetary support from Fed Chair Powell. Year-to-date downside for the index has narrowed to only 8.0% and the decline from February’s record high is at 12.2%. Equities in the EU and Asia also posted moderate losses overnight. Longer-dated Treasury yields are steady, with the 10-year yield at 0.67%, while the dollar is flat in the middle of its recent trading range. Crude oil is extending its sharp uptrend from its lows, with Brent topping $36.

Investors Ponder the Ramifications of US-China Tensions

The US and China continue to trade barbs over a broad array of issues, with the Senate passing a bill targeting Chinese stocks that trade on US exchanges and President Trump turning up the rhetorical heat. Yesterday, the US Senate passed a bill with broad bipartisan support which could result in the eventual delisting of Chinese companies currently trading on US stock exchanges barring fulfillment of certain conditions. Specifically, the bill calls for listed companies to pledge that they are not controlled by a foreign power or government, and notwithstanding the generalized language, the sponsors of the bill made clear that it is specifically directed at Chinese companies. Also, if a company does not submit an audit for inspection by the Public Company Accounting Oversight Board for three straight years, its shares will be delisted from US exchanges. Though the House of Representatives is not yet taking up this legislation, analysts suspect that it will over the coming weeks and believe it will pass and be signed by President Trump. Shares of US-listed Chinese tech giants sold off on the headlines but mostly recouped their intraday losses, likely due to the relatively lengthy timeline for any enforcement actions (three years at least). A basket of Chinese ADRs fell as much as 3.9% from the intraday highs but closed only 0.6% lower on the day. Relatedly, shares of Luckin Coffee extended their precipitous plunge after reopening yesterday for trading on the Nasdaq following a suspension due to the revelation in April that management fabricated an enormous amount reported sales. The Nasdaq is set to delist Luckin Coffee pending a hearing and has indicated that it will tighten the accounting requirements for its listed companies. Separately, President Trump took to Twitter last evening to suggest that Chinese President Xi has a hand in the disinformation campaigns over the pandemic and that China is “desperate” for Biden to beat him in November’s presidential election. Early yesterday, tension had already been rising between China and the US, as Chinese officials reacted sharply to Secretary of State Pompeo’s recent statements on Taiwan, which Beijing are calling a violation of the “one-China” principle.

Fed Minutes Convey Caution as Investors Await Weekly Jobless Data

The minutes of the April 28-29 FOMC meeting released yesterday demonstrated continuity of the Fed’s historically accommodative posture in face of the Covid-19 pandemic as economic data remains severely depressed. Citing the extraordinary amount of uncertainty and considerable risk to the economy in the medium term, members noted that interest rates will be kept near zero until a recovery is firmly in place and reiterated their commitment to use their full range of tools to support the US economy. The outlook was generally dour, focusing on the risk that a second wave of the pandemic could lead to another round of lockdowns and drag the US economy deeper in recession, prompting a further jump in unemployment and renewed downward pressure on inflation. Fed Chair Powell will make more remarks today, as will Vice Chair Clarida and New York Fed President Williams. Meanwhile, today’s tally of jobless claims for the week ending May 16^th are estimated at 2.4 million, which remains dismally high but would continue the declining trend over recent weeks and mark the lowest level since the pandemic began. For context, 3.0 million Americans filled for unemployment benefits for the week ending May 9^th, down from 3.2 million the prior week, lifting the total reported to 36.5 million, equivalent to nearly a quarter of the working age population.

Additional Themes

Treasury Issues 20-Year Bond – Yesterday, traders noted a strong Treasury auction for its new 20-year bonds, which is the first time the maturity has been sold since 1986. Both the 10-year and 30-year bonds rallied following the sale of their new benchmark neighbor. In his testimony yesterday, Treasury Secretary Mnuchin indicated that he had turned down proposals of 50- & 100-year Treasury issuances because “demand is just not there.”

Turkey Cuts Rates – The lira has recovered modest losses today against the dollar after the central bank cut its policy rate for the ninth straight time from 8.75% to 8.25%. The lira has rallied in recent weeks after registering a record low against the dollar early this month.

Summary and Price Action Rundown

Global risk assets are uneven this morning investors grapple with uncertainty over the outlook for Covid-19 treatments and economic reopening while awaiting Fed meeting minutes from April. S&P 500 futures indicate a 1.1% higher open, which would retrace yesterday’s late session swoon for the index that followed publication of an article casting doubt on early progress toward a coronavirus vaccine. That setback put year-to-date downside at 9.5% and the decline from February’s record high at 13.7%. Equities in the EU are moderately higher while Asian stocks were mixed overnight. Longer-dated Treasury yields are steady below their recent peak, with the 10-year yield at 0.69%, while the dollar is continuing to edge back to the middle of its recent trading range. Crude oil is resuming its uptrend, with Brent topping $35.

Spotlight Remains on Fed Accommodation Ahead of Meeting Minutes

With Fed Chair Powell’s testimony in front of the Senate Banking Committee yesterday reemphasizing for the second time this week his intention to ease monetary policy further as needed, market participants will parse the minutes from April’s FOMC meeting for any further clues as to the outlook. The minutes are expected to again convey a bias toward further accommodation but also suggest that negative interest rate policy (NIRP) is not being considered. At the April Fed meeting, the FOMC voted unanimously to maintain the target range for the federal funds rate between 0 to 0.25% and held the interest on required and excess reserve balances at 0.10%. The accompanying statement reiterated that the Fed is committed “to using its full range of tools to support the economy” and “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Subsequent Fed communications have remained consistent with this formulation. In his post-decision press conference, Chair Powell opined that the Fed will likely have to do more to support the economy over the coming months and downplayed concerns that unprecedented monetary easing risks inflating an asset price bubble. For context, the Fed cut interest rates to near zero at two unscheduled meetings in mid-March and began purchasing massive quantities of bonds to repair financial markets, among other liquidity and economic support programs.

Questions on Vaccine Breakthrough Whipsaw Investor Sentiment

Monday’s optimism over apparent progress toward a Covid-19 vaccine by biotech company Moderna was shaken by a report pointing out the lack of data needed to accurately assess the results. Stocks faded in late trading yesterday after a Stat article highlighted the gaps in Moderna’s reporting of results, which expert sources said prevented any independent evaluation of the already narrow study. For context, the market mood turned euphoric on Monday on the announcement that Moderna’s phase 1 trial of a promising coronavirus vaccine yielded positive results and that the company is planning to begin phase 2 testing within the coming days. The results came from an interim report on dozens of patients followed over weeks, whereas standard vaccine studies require broad testing in thousands of patients followed over many months or years. With its share price having quadrupled year-to-date, Moderna is readying a stock sale to raise $1.3 billion to fund development of the vaccine, though its shares sank 10.4% yesterday and are down another 3.7% in pre-market trading.

Additional Themes

PBoC Holds Steady as US-China Tensions Percolate – Overnight, the People’s Bank of China (PBoC) held its one-year Loan Prime Rate (LPR) steady as expected after lowering it by 20 basis points (bps) to a record low of 3.85% on April 20^th. That was the second cut this year as policymakers sought to shore up the economy battling with the Covid-19 outbreak after it contracted by 6.8% year-on-year in Q1 2020, the first decline since 1992. The two cuts this year have lowered rates from 4.1% to 3.85%. Over that time, the five-year LPR was also shaved by 10bps to 4.65%, more than market consensus of a 5bps reduction. Estimates project the LPR to be 3.70% by July. This comes ahead of China’s annual National People’s Congress, which begins on Friday after a pandemic-induced delay. Analysts will parse official communications from the gathering for any significant policy signals. Meanwhile, tensions with the US and its allies continue to simmer, as Chinese officials reacted sharply to Secretary of State Pompeo’s recent statements on Taiwan, which Beijing are calling a violation of the “one-China” principle.

Retailer Earnings – Yesterday, Walmart and Home Depot reported their earnings with mostly positive results, particularly with Walmart’s e-commerce sales, which soared 74%. Walmart and Home Depot shares nevertheless closed lower yesterday, falling 2.1% and 3.0%, respectively, but retain year-to-date gains of 5.1% and 9.0%. Lowe’s and Target are in the spotlight today, with a preliminary assessment showing surprising upside for the former and tepid results for the latter. For context, April retail sales sank 16.4% month-on-month and 21.6% on the year.

Summary and Price Action Rundown

Global risk assets are consolidating after yesterday’s powerful rally, which was spurred by news of apparent progress toward a Covid-19 vaccine and redoubled pledges of monetary support from Fed Chair Powell. S&P 500 futures point to a 0.4% lower open, which would trim yesterday’s 3.2% surge for the index that put year-to-date downside at 8.6% and the decline from February’s record high at 12.8%. Equities in the EU are similarly retracing a portion of yesterday’s upside this morning while Asian stocks posted gains overnight. Longer-dated Treasury yields are settling lower after rising alongside equities to start the week, with the 10-year yield at 0.71%. Meanwhile, the dollar is continuing to slide back to the middle of its recent trading range. Crude oil is also pausing its recent upside run, with Brent fluctuating below $35.

Equities Pause for Breath After a Surge of Vaccine Optimism

Investors continue to digest yesterday’s tantalizing news of positive results in early vaccine trials, which bolstered hopes for a faster-than-expected economic recovery and propelled risk asset prices higher. The market mood turned euphoric yesterday on the announcement that Moderna’s phase 1 trial of a promising coronavirus vaccine yielded positive results and the company plans to begin phase 2 testing within the coming days. The trial of mRNA-1273 began in March as test subjects were given two doses of the vaccine. The phase 1 study showed that in the tested subjects, the vaccine effectively prevented the virus from replicating in the body. Dr. Tal Zaks, Moderna’s chief medical officer stated “[this] data substantiates our belief that mRNA-1273 has the potential to prevent COVID-19 disease and advance our ability to select a dose for pivotal trials.” While the data is uplifting in the race for a vaccine, this still only represents the first successful step in a long process to bring a vaccine to market. For context, these results come from an interim report on dozens of patients followed over weeks, whereas standard vaccine studies require broad testing in thousands of patients followed over many months or years. Given the elevated uncertainty and, even if this is a true breakthrough, a lengthy timeline for broad deployment, risk assets are retracing a portion of yesterday’s rally.

Powell and Mnuchin Senate Testimony in Focus

With Fed Chair Powell’s more balanced remarks over the weekend and pledges of more monetary support helping spur risk asset prices higher yesterday, investors will closely parse his remarks today, alongside those of Treasury Secretary Mnuchin, in front of the Senate Banking Committee. After stating in an interview aired over the weekend that “there’s a lot more” the Fed can do and that it is “not out of ammunition by a long shot,” Chair Powell is set to testify before the Senate Banking Committee today that he is prepared to utilize the Fed’s “full range of tools to support the economy,” according to his prepared statement. His prepared remarks also convey an expectation “to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals.” Meanwhile, Secretary Mnuchin’s statement conveys an expectation for a US economic rebound in the second half of the year. Mnuchin is likely to receive many questions on the Paycheck Protection Program (PPP), one of the key planks of the CARES Act relief bill. Last week, Mnuchin indicated that “technical fixes” would be made to address the concerns of some businesses with the PPP. Specifically, the Treasury is set to adjust the condition that for the loans to be forgiven, 75% of the funds had to be spent on employee salaries and the funds used within two months. The changes are underpinned by a notable cooling demand for loans, which may reflect companies’ inability to use the funds. For context, the initial installment of $350 billion in loans ran out after about two weeks, but three weeks after the second $310 billion tranche of funding was released, about 37% of the funds remained available, according to figures on the SBA website.

Additional Themes

Historic EU Stimulus Plan Revealed – Yesterday’s announcement of the €500 billion regional economic support fund was significantly more impactful than expected, as France and Germany agreed to raise the money for the spending on an EU-wide basis, tracking the standard budgetary contribution formula, but will be disbursed to the areas of greatest need. Importantly, the distributions are proposed to be primarily in grants rather than loans, with the European Commission to be responsible for directing the outlays. This potentially historic blueprint still requires approval by the 27 member states, and a final proposal is due by the May 27^th European Summit. The euro is extending its rally versus the dollar this morning. – 

Retailer Earnings – Though first quarter earnings seasons is largely complete, retail giants Walmart and Target report today, alongside home improvement bellwethers Home Depot and Lowe’s. A preliminary read shows Walmart’s e-commerce strategy paying off.

Summary and Price Action Rundown

Global risk assets are rallying to start the week with the progression of economic reopening and higher oil prices buoying sentiment, while Fed Chair Powell offered a more balanced assessment of risks in his commentary over the weekend. S&P 500 futures indicate a 1.7% higher open, which would pare last week’s 2.3% loss for the index that put year-to-date downside at 11.4% and the decline from February’s record high at 15.4%. Equities in the EU are outperforming this morning while Asian stocks were moderately higher overnight. Longer-dated Treasury yields continue to fluctuate above recent lows, with the 10-year yield at 0.65%. Meanwhile, the dollar is edging lower within its recent trading range. Brent crude prices are vaulting higher on upbeat reports of China’s oil demand recovery (more below).

Investors Parse Additional Commentary from Fed Chair Powell

Following a set of remarks last Wednesday that were taken by analysts as cautious and somber, Chair Powell’s interview on CBS which aired over the weekend featured a somewhat more balanced assessment of the economic risks and hinted at future easing strategies. Chair Powell warned that the economic rebound could be so slow as to stretch through the end of next year and that full recovery may require a vaccine. These dour assessments, however, were tempered by his statement that the US economy could “recovery steadily” through the second half of this year in the absence of a secondary wave of infections. On the outlook for monetary policy, Chair Powell reemphasized that “there’s a lot more” the Fed can do and that it is “not out of ammunition by a long shot.” He suggested that forward guidance and adjusting asset purchases might be the next policy levers the Fed would pull, with the full transcript of the interview revealing his continued lack of enthusiasm for negative interest rate policy (NIRP). Also, Chair Powell again hinted an endorsement of additional fiscal support for the economy. This comes after his remarks last Wednesday were characterized by analysts as broadly downbeat, calling the pandemic the “biggest shock to the economy in modern times” and noting that “there is a growing sense that the recovery may come more slowly than we would like” and thereby “turn liquidity problems into solvency problems.” This downside risk was highlighted in the Federal Reserve’s biannual Financial Stability Report, which was published on Friday, saying that adverse economic fallout from the pandemic rendered asset prices “vulnerable to significant price declines.” Chair Powell will again be in the spotlight this week when he testifies alongside Treasury Secretary Mnuchin before the Senate Banking Committee.

US-China Tensions Continue to Percolate

With rhetoric heating up on both sides, a hardening US stance against China on the tech and investment fronts, and threats of potential retaliation by Beijing, investors continue to ponder the ramifications of the re-intensifying friction. Over the weekend, White House advisor Peter Navarro again alleged Chinese malfeasance in dealing with the Covid-19 outbreak. Last week, the US Commerce Department moved to tighten restrictions on the supply of chips to Chinese IT giant Huawei, as Secretary Ross took to Twitter to criticize the company’s conduct. At the same time, however, the Commerce Department extended the licenses it has granted for US companies to do business with Huawei for another 90 days, but warned that this was likely the final extension. Chinese state media indicated that Beijing could retaliate against US companies through cybersecurity reviews, anti-monopoly measures, and placement on the “unreliable entities” list, as well as halting airliner purchases from Boeing. This followed Thursday’s interview in which President Trump indicated that he is focused on Chinese companies that are listed on the NYSE and Nasdaq but have not been subjected to US-standard accounting rules. Earlier last week, the US government retirement savings fund, the Thrift Savings Plan (TSP), suspended their upcoming move that would have allocated a portion of its holding to Chinese stocks in proportion to the weightings of the MSCI All Country World Index.

Additional Themes

Oil Prices Extend Their Rebound – After crashing to two-decade lows in late April, crude oil prices have staged a sharp rally off the lows amid hopes that a combination of supply cuts by OPEC and other major producers and improving demand amid economic reopening will help rebalance the oversupplied market. Reports this morning suggest that Chinese oil demand is back to pre-crisis levels after contracting nearly 20% earlier this year, with sources citing declining use of public transportation as helping boost usage. Last week marked the first time since February that US crude stockpile data registered a weekly drawdown.

This Week – The calendar for the coming days features global purchasing managers’ indexes, China’s interest rate decision, and minutes from the latest Federal Reserve meeting. Also, Fed Chair Powell and Treasury Secretary Mnuchin will testify before the Senate Banking Committee tomorrow, and Powell has another appearance on Thursday to discuss the impact of Covid-19.

Summary and Price Action Rundown

Global risk assets are mostly lower this morning as investors continue to ponder the outlook for economic reopening and the next round of policy support measures while awaiting US consumer data and monitoring the latest developments on the US-China front. S&P 500 futures point to a 0.4% lower open, which would deepen this week’s 2.6% loss for the index that has taken year-to-date downside to 11.7% and the decline from February’s record high to 15.8%. Equities in the EU are higher this morning while Asian stocks were mixed overnight. Longer-dated Treasury yields continue to fluctuate near recent lows amid the cautious tone in markets, with the 10-year yield at 0.60%. Meanwhile, the dollar is edging higher within its recent trading range. Crude oil is holding gains after registering a new high for the month.

White House Pivoting on Fiscal Relief Efforts?

Though House Democrats, Senate Republicans, and the White House appeared to be deadlocked over the size and composition of the next round of pandemic relief spending, a report yesterday indicated the Trump administration’s willingness to seek a deal. The Washington Post reported around midday yesterday that the White House was softening its opposition to state aid, which features prominently in the latest draft pandemic relief act drafted by House Democrats, in hopes of securing tax cuts and corporate liability limitations. This comes after President Trump called the $3 trillion HEROES Act crafted by House Democrats “dead on arrival” earlier this week and Treasury Secretary Mnuchin echoed this sentiment, indicating that the administration is intent on pausing for “the next 30 days and think carefully.” For context, the draft bill features $1 trillion in support for states and municipalities, money for Covid-19 testing, direct payments to households of up to $6000, and surpasses the size of its predecessor, the $2.2 trillion CARES Act, which was signed into law in March.

US Consumer in the Spotlight

US retail sales for April will provide a degree of insight on the efficacy of government support payments, while Chinese economic data overnight suggested a choppy recovery. Although most traditional economic datapoints over the last few months have been considered stale by investors who are increasingly focused on the prospects for recovery rather than the depths of the current economic trough, April’s US retail sales figures have a greater likelihood of moving markets given the primacy of the US consumer to any global rebound scenario. Headline expectations are for a 12.0% month-on-month (m/m) contraction, deepening from -8.4% in March. A reading of May consumer sentiment follows later this morning. Last month’s industrial production is also forecast at -12.0% m/m after a 5.4% retrenchment in March. This follows yesterday’s latest jobless figures, which showed that 2.981 million Americans filled for unemployment benefits over the week ending May 9^th, down from 3.176 million the prior week and the lowest level since the coronavirus crisis began. However, filings came in well above market expectations of 2.5 million and lifted the total reported to 36.5 million, equivalent to nearly a quarter of the working age population. Furthermore, continuing jobless claims hit a new record of 22.833 million in the week ending May 2^nd.

Additional Themes

Mixed Chinese Data as Tensions with the US Percolate – Overnight, Chinese economic figures for April suggested an uneven and tepid recovery. While industrial production topped estimates at 3.9% year-on-year (y/y), rising from 1.1% y/y in March, retail sales undershot expectations at -7.5% y/y, though this still represents an improvement from the prior month’s -15.8% y/y. Fixed asset investment growth, on a year-to-date basis, roughly matched estimates at -10.3% y/y. This comes amid a week of rising friction between the US and China. This morning, headlines indicate US moves to block Chinese IT giant Huawei from using US software. Yesterday in an interview, President Trump indicated that he is focused on Chinese companies that are listed on the NYSE and Nasdaq but have not been subjected to US-standard accounting rules. This comes after the US government retirement savings fund, the Thrift Savings Plan (TSP), suspended their upcoming move that would have allocated a portion of its holding to Chinese stocks in proportion to the weightings of the MSCI All Country World Index.

Germany Faces Deepening Recession – Germany’s first quarter (Q1) GDP contracted 2.2%, in line with expectations, which was the steepest decline since Q1 2009. Q2 is forecast to register -10%. This comes a day after the Finance Ministry reported that Germany’s overall tax income for 2020 is expected to be €98.6 billion ($106 billion) lower than an estimate six months ago, the first drop since the global financial crisis. The estimates assume a 6.3% GDP contraction this year, with the country facing its deepest recession since World War II. With investors braced for downbeat news, the euro is stable near three-year lows versus the dollar and German bund yields continue to languish in negative territory.