May Day 2020: Stocks Down, Developing Currencies Weaken, and Trump Makes a Fresh Tariff Threat

May 1, 2020

Markets are observing labor day holidays in most of Continental Europe and in a slew of Asian countries. What should have been a very quiet day was disturbed by a new tariff threat from President Trump against China, whom he blames for the Covid-19 global pandemic which has hit America particularly harshly. People didn’t have enough to worry about, so the possibility of a reescalation of the tariff war has been added to the pile. If one accepts the epithet “China flu”, then perhaps the even more devastating Spanish flu outbreak of 1918 ought to be renamed America’s flu because it surfaced initially in Kansas and was exported to Europe by U.S. GIs fighting in WWI. The blame game is bad for world peace, world health and world prosperity.

Share prices fell 5% in Australia and are down 2% in Great Britain. Futures point to a likely drop in the U.S. market as well.

The dollar rose sharply over night against a number of developing economy currencies such as the South African rand, Turkish lira, Mexican peso, Russian ruble and Chinese yuan, whose offshore value weakened through 7.13 per dollar. The dollar is also up 1.1% and 1.0% against the Aussie dollar and kiwi, 0.7% relative to the Canadian dollar, and 0.5% vis-a-vis sterling. Dollar losses of 0.4%, 0.3%, and 0.2% occurred overnight versus the yen, Swiss franc and euro.

The prices of oil and gold each dipped 0.2%, and while the 10-year British gilt yield climbed 2 basis points, its U.S. and Japanese counterparts are down 3 basis points and unchanged.

The usual flood of manufacturing purchasing manager surveys that typically happens on the first business day of the month was curtailed by May Day observances, but there have been a couple of such reports.

  • Japan’s April manufacturing PMI was revised from 43.8 reported initially to a 133-month low of 41.9.
  • The British factory PMI also got revised downward to an even more contractionary reading of 32.6, which is a record low in this 28-year data series.
  • Ireland’s manufacturing PMI score was 36.0, a record 133-month low and down from and above-50 reading of 51.2 just two months earlier.
  • Denmark’s 38.6 PMI score in April represents a 131-month low and is 7.9 points below the prior month’s reading.
  • Two Australian manufacturing PMIs got reported. The AIG-compiled reading, 35.8, is the lowest since April 2009 and 13.6 points below the March result. The CBA-compiled PMI for Australia got revised down from 45.6 to 44.1, which is a record low and down from 49.7 in March.

Other economic news this first day of May has been light.

Britain’s Nationwide house price index for April showed a 3.7% on-year increase, the most in 38 months. However, that data doesn’t reflect the impact of Covid-19 on construction, and a big deceleration is likely in coming months.

Indeed, British mortgage applications shrunk to a 7-year low in March, and consumer credit contracted GBP 3.841 billion, which was by the most since at least 1993.

Core CPI inflation during April in Tokyo, which reports consumer prices one month ahead of the national figures, swung into the red by 0.1% versus 12-month increases of 0.4% in March and 0.7% in January.

South Korea posted its first trade deficit last month since the start of 2012. The shortfall totaled $950 million and trimmed the first quarter surplus to $8.53 billion, 32.2% less than a year earlier.

Australian producer price inflation slowed last quarter to 1.3%, a 13-quarter low. Such had crested at 2.1% in the third quarter of 2018.

Yesterday, the Central Bank of Colombia announced its second consecutive 50-basis point interest rate reduction. The new rate level, 3.25%, is its lowest since 2014. The rate had been 4.25% from April 2018 until March 2020 and earlier was at a peak of 7.75% from July 2016 to December 2016. Officials said the latest rate cut is consistent with the prior measures taken to increase liquidity and ensure proper financial market functionality.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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