Full-blown trade war becomes baseline scenario, it’s PMI day, and May hangs by a thread. Here are some of the things people in markets are talking about today.
Not going well
The breakdown in Sino-U.S. talks and the latest targeting of Chinese companies by the White House has economists at investment banks increasingly pessimistic about the long-term outlook. Goldman Sachs Group Inc., Nomura Holdings Inc. and JPMorgan Chase and Co. are among those pricing-in a greater chance of a protracted trade war. One China analyst sees both sides stuck in a cycle of “fighting and talking” until 2035. Meanwhile, the fallout is hitting emerging-market investors’ favorite tech companies, with the three biggest losing $170 billion in value so far this month.
Purchasing-managers survey data for the euro area came in softer than expected. German manufacturing continuing to be a weak spot, with the reading at 44.3 both below forecasts and a drop from April’s 44.4. The country’s IFO survey of business expectations showed confidence fell to the lowest level in four years. It was a different story in France where the private sector expanded at the fastest pace in six months. Overall, PMI for the euro area remained relatively subdued, with the reading for the currency zone inching higher to 51.6 from 51.5. Data for the U.S. economy is due at 9:45 a.m. Eastern Time.
British Prime Minister Theresa May’s political future hangs by a thread as a revolt against her leadership, which saw the resignation of a senior minister yesterday, gathers pace. Today’s European elections in the U.K. may give her a brief reprieve until polls close, at least. Speculation is mounting that she may resign tomorrow. Even if she survives until the weekend, a poor showing when those election results are announced on Sunday could be the final nail in the coffin. Pound investors continue to vote with their feet, as the currency stays on its record losing streak.
Overnight, the MSCI Asia Pacific Index slipped 0.7% while Japan’s Topix index closed down 0.4% following a drop in factory activity and continuing yen strength. In Europe, the Stoxx 600 Index was 1.4% lower at 5:50 a.m. after weak PMIs added to fears about global trade. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 2.357% and gold was a little higher.
Weekly initial jobless claims, published at 8:30 a.m., are expected to show a slight climb to 215,000. At 9:45 a.m., consumer confidence data along with PMIs are due. New home sales numbers for April are released at 10:00 a.m. The ECB publishes an account of its most recent policy meeting this morning, after yesterday’s Fed minutes signaled continuing patience on rates. Speaking of the Fed, today Dallas Fed President Robert Kaplan is joined on a panel by San Francisco Fed President Mary Daly, Atlanta Fed President Raphael Bostic and Richmond Fed President Tom Barkin. Best Buy Co. Inc. reports in what has been a mixed, at best, earnings season for retailers.