The Monday Market Minute
- Global stocks slump as investors fret over the potential for trade conflict as the U.S. and China bicker over the origins of the coronavirus.
- President Donald Trump again raises the prospect of China reprisals while Secretary of State Mike Pompeo says there is "enormous evidence" the virus came from a laboratory in Wuhan.
- Factory data around the world paints an historically grim picture of April output, with European PMI levels falling to 33.4.
- The U.S. dollar books solid gains as traders adopt a defensive tone heading into the week, which will see 156 S&P 500 companies reporting alongside factory output, weekly jobless and April employment data.
- U.S. states move to re-start regional economies, with 22 expected to lift or ease stay-at-home restrictions over the next ten days.
- Wall Street futures suggest a weaker open ahead of earnings from Wynn Resorts and Skyworks as well as factory output data at 9:45 am Eastern time.
U.S. equity futures slumped lower Monday, while oil traded firmly in the red and the dollar trended higher, as investors grew increasingly unsettled by the prospect of a bitter debate between Washington and Beijing over the origin of the coronavirus and factory data painted a grim picture of its economic damage in the world's biggest markets.
In a virtual town hall late Sunday, Trump again raised the idea of reprisals against China for its lack of transparency during the early stages of the outbreak, which has now risen to 3.5 million people around the world and caused at least 250,000 deaths. He also suggested the U.S. could "terminate' the January trade deal with China, and said tariffs were "at a minimum are the greatest negotiating tool that we have ever devised."
Secretary of State Mike Pompeo, in fact, went one step further, telling Sunday media that there was "enormous evidence" that the novel coronavirus, known as COVID-19, had emerged from a virology lab in the city of Wuhan.
The potential for a renewed trade war between the world's two biggest economies could overshadow any market benefit from the re-start of business and factory activity in the United Sates, where at least 22 states are set to either lift of relax "stay-at-home" orders over the next ten days.
Factory data from around the world Monday, as well, suggested some of the worst monthly downturns on record, with activity in Europe slumping to an all-time low of 33.4 points over the month of April.
With corporate earnings slated to decline 12.7% over the first quarter, and a further 37.8% over the three months ending in June, investors may struggle to take stocks higher in the days ahead as more economic benchmarks reveal the scale of the coronavirus damage and Friday's April employment report tallies the cots to the U.S. jobs market.
With that risk in the window, U.S. equity futures were trading firmly lower to start the week, with contracts tied to the Dow Jones Industrial Average indicating a 235 point opening bell decline and those linked to the S&P 500 suggesting a 21 point pullback for the broader benchmark.
Airline shares were notable pre-market movers Monday after billionaire investors Warren Buffett told investors over the weekend that he's dumped all his holdings in the sector in the wake of the coronavirus pandemic.
Delta Air Lines DAL, one of the four carriers Buffett exited last month, was marked 10.7% lower in pre-market trading Monday to indicate an opening bell price of $21.88 each. It's main domestic rivals, American Airlines AAL and United Airlines UAL, were marked 11.7% and 10.3% lower respectively, while U.S.-focused Southwest Airline LUV was seen 7.9% lower at $27.10 each.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies and has lately been seen as a useful indicator for risk market sentiment, traded 0.3% higher at 99.358 in overnight dealing as investors plowed cash into safe haven assets. That pushed 10-year U.S. Treasury note yields lower, to around 0.613%, in early European trading.
European stocks kicked-off their May campaign on a sour note, with traders returning from their May Day holiday Friday to take the Stoxx 600 2.5% lower, lead to the downside by a 3.2% slump for the trade-sensitive DAX performance index, while Britain's FTSE 100, which was open for trading on Friday, fell 0.20%.
“Euro area manufacturing output plunged to an extent greatly exceeding any decline previously seen in the near 23-year history of the PMI survey in April, reflecting a combination of factors including widespread factory closures, slumping demand and supply shortages, all linked to the COVID-19 outbreak," said Markit's chief economist Chris Williamson.
Global oil prices were on the back foot, as well, following last week's surge, which was largely driven by speculative buying after prices hit near record lows amid concerns over a glut of supply and a lack of storage facilities for unwanted crude.
Front-month WTI futures contracts for June delivery, the new benchmark for U.S. prices, were last seen $1.44 lower from their Friday close in New York and changing hands at $18.34 per barrel.
Brent futures for July delivery, which benchmark around 60% of global crude purchases, were marked 73 cents lower at $25.71 per barrel.
Overnight in Asia, Japan's Nikkei 225 was shut for Children's Day, one of the country's traditional early May holidays, sapping liquidity around the region and leaving the U.S. dollar to mop-up the risk-averse moves in currency markets.
The region-wide MSCI ex-Japan index, meanwhile, was seen 1.6% lower heading into the close of trading, although a weaker yuan again helped lift China's Shanghai Composite to a 1.3% gain even as Hong Kong slumped 4.2% and the South Korean KOSPI fell 2.7%.