Markets mixed as Trump shows restrained response to China

Markets were mixed on Friday.

The STOXX Europe 600 fell 1.4 percent but the S&P 500 reversed an early decline to close up 0.5 percent.

Earlier in Asia, the Nikkei 225 fell 0.2 percent but the Shanghai Composite rose 0.2 percent.

Early concerns over US-China tension eased somewhat as US President Donald Trump ordered an end to Washington’s special treatment of Hong Kong in response to China's passing of a national security law on the city but did not mention any further trade restrictions.

Economic data on Friday continued to be negative though. Japan's retail sales fell 13.7 percent year-on-year in April while US consumer spending plunged 13.6 percent last month, the biggest drop on record.

However, analysts are looking past these data.

Chris Low, chief economist at FHN, said that if the economy re-opens quickly “without consequence”, consumers’ accumulating savings “represent considerable spending power in the second half”.

Market rally stalls after China moves ahead on HK security law

Markets were mixed on Thursday.

The Nikkei 225 surged 2.3 percent and the STOXX Europe 600 jumped 1.6 percent. However, the rally lost steam by the end of the day and the S&P 500 fell 0.2 percent.

US-China tension kept equities in check after China’s parliament on Thursday approved a decision to go forward with national security legislation for Hong Kong.

“There’s going to be some push back. No one was anticipating that in the immediate future,” said Ed Moya, senior market analyst at OANDA. “It could derail some of the reopening momentum we’ve had.”

Markets rise despite US-China tensions amid “huge amount of liquidity”

Markets were mostly higher on Wednesday. The S&P 500 jumped 1.5 percent and the STOXX Europe 600 rose 0.2 percent.

Earlier in Asia, though, markets were mixed. The Nikkei 225 rose 0.7 percent but the Shanghai Composite fell 0.3 percent.

“Mounting US-China tensions bodes ominous for the global economy amid pandemic fragilities,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a note after the US said it was considering sanctions on Chinese firms and officials over China’s plans to impose new security legislation on Hong Kong.

Elsewhere, though, investors shrugged off the rising geopolitical tension.

In Europe, market sentiment was boosted by a stimulus plan from the European Commission while US stocks were buoyed by hopes for an economic recovery as restrictions are relaxed.

However, David Kelly, chief global strategist at JPMorgan Asset Management, said that the recovery will take some time and that the rally is being driven mainly by large flows of money.

“You got a huge amount of liquidity with nowhere to go,” said Kelly.

“We will see a start of a recovery, but it shouldn’t be misinterpreted,” Kelly said. “We’re not going to get back to full employment or even an unemployment rate below 10% any time this year, and maybe it will take most of next year.”

Markets rise, new market highs “a real possibility”

Markets rose on Tuesday.

The S&P 500 rose 1.2 percent, the STOXX Europe 600 rose 1.1 percent and the Nikkei 225 surged 2.6 percent.

The S&P 500 briefly moved above its 200-day moving average on Tuesday but failed to hold that level.

“In the first attempt to get above the 200-day, the bears made a stand,” said Scott Redler, partner with T3Live.com.

Still, some analysts see a good chance of a more sustained move over the 200-day moving average.

“Maybe you spend a couple months not making much progress, but as long as investors are as defensive as they are, I wouldn’t get too negative,” said Chris Verrone, Strategas head of technical strategy.

“Week by week, the active bulls are proving more powerful than the active bears,” suggested Redler.

“The underlying trend is still pretty healthy,” said Robert Sluymer, Fundstrat technical analyst.

Wharton School professor Jeremy Siegel told CNBC on Tuesday that new stock market highs this year is “a real possibility”.

Even Mohamed El-Erian, the chief economic advisor at Allianz who had warned of dire economic and market consequences from the coronavirus in early February, has become more optimistic.

“It’s not just stocks. It’s other risk assets. It’s fixed income. It’s currencies, and it’s commodities,” he said. “So it’s really good to see an across the board risk-on tone, which we haven’t had really for quite a while.”

Markets mixed amid concerns over increased US-China tension

Markets were mixed on Friday.

The S&P 500 rose 0.2 percent, the STOXX Europe 600 was flat while the Shanghai Composite fell 1.9 percent.

Markets were initially weighed down by China's announcement of a plan to impose a new security law in Hong Kong, raising concerns of fresh tension between China and the US.

“Justifiably, the Hong Kong Security bill on the agenda for the NPC in Beijing today evokes insecurity in the markets; as risks of US China conflict and renewed Hong Kong protests grow,” analysts at Mizuho Bank said in a note.

However, investors turned more optimistic over the course of the day.

Vasu Menon, executive director of investment strategy, wealth management at OCBC Bank, said that “we’ve seen this happen before and while it might impact the Hong Kong market, I’m not sure whether it will spillover into the rest of Asia, rest of the world unless it’s results in a significant economic impact as Covid-19 has”.

Meanwhile, on the COVID-19 front, Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases in the US, said on Friday that Moderna’s vaccine data looked “promising”.

Fauci also acknowledged that the US “can’t stay locked down for such a considerable period of time that you might do irreparable damage and have unintended consequences, including consequences for health”.

Tom Lee, founder and head of research at Fundstrat Global Advisors, claimed that “there has yet to be a second wave in re-opened economies” and thinks that “stocks offer pretty good risk/reward”.

Markets fall, economic recovery could be “slow and bumpy”

Markets fell on Thursday.

The S&P 500 fell 0.8 percent, the STOXX Europe 600 fell 0.8 percent and the Nikkei 225 fell 0.2 percent.

A report from IHS Markit on Thursday showed that its flash manufacturing PMI for the US rose to 39.8 in May from 36.1 in April while the flash services PMI rose to 36.9 from 26.7.

IHS Markit's flash composite PMI for the euro zone rose to 30.5 in May from 13.6 in April.

While the PMI data indicated some improvement in the economy, strategists at Cantor Fitzgerald wrote in a note that “markets are priced to perfection on the expectation that there is only smooth sailing” and warned that should COVID-19 cases re-emerge, “the path back to growth will be slow and bumpy”.

Still, Savita Subramanian, Bank of America's head of US equity and quantitative strategy, suggested that low equity allocation among investors and bond yields near zero “can be the catalyst for the rotation into stocks, driving the market higher”.

Markets rise as COVID-19 cases hit record

Markets were mostly higher on Wednesday.

The S&P 500 jumped 1.7 percent, the STOXX Europe 600 rose 1.0 percent and the Nikkei 225 rose 0.8 percent.

The World Health Organization reported on Wednesday that the number of newly reported COVID-19 cases worldwide hit a daily record with more than 100,000 new cases over the last 24 hours.

Still, investors remain hopeful that economies will recover as movement restrictions imposed to curb the spread of the diseasex` are relaxed.

“With re-openings now the vogue,” said Jim Paulsen, chief investment strategist at the Leuthold Group, “it seems almost assured that fundamental economic and earnings reports are headed for a period of improvement.”

Other analysts are less optimistic.

Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said in a note that stocks have already “priced in some degree of reopening success” but “consumer spending may be slower to come back than the market appears to currently expect”.

Peter Toogood, CIO of financial services business The Embark Group, told CNBC on Wednesday that the US stock market “has been expensive and remains expensive”.

Markets mixed amid doubts about rally

Markets were mixed on Tuesday.

The S&P 500 fell 1.1 percent and the STOXX Europe 600 fell 0.6 percent but the Nikkei 225 rose 1.5 percent.

Stocks were weighed down late in the day by doubts over Moderna's COVID-19 vaccine candidate, hopes for which had driven Monday's gains.

But many fund managers have had doubts about the stock market rally anyway.

A global fund manager survey by Bank of America found that two-thirds called the rally from the March low a “bear-market rally” rather than a new bull market.

Markets rise as end of COVID 19 downturn seen

Markets rose on Monday.

The S&P 500 jumped 3.2 percent, the STOXX Europe 600 surged 4.1 percent and the Nikkei 225 rose 0.5 percent.

Kristina Hooper, Invesco’s chief global market strategist, wrote that “the stock market has largely shrugged off the damage created by the pandemic-related cessation of economic activity” while Joe Saluzzi, co-head of equity trading at Themis trading, said that “the bets are coming in that we seen an end coming in sooner rather than later”.

A report by Moderna that it is seeing “compelling” early data from a phase-one clinical trial for its experimental COVID-19 vaccine helped boost markets, with Oanda’s senior market analyst Edward Moya saying that a vaccine “is a gamechanger” for an economic recovery but also warning that it “is still months away from being finalized”.

In the meantime, though, Morgan Stanley’s European equity strategist Graham Secker said that “this economic upturn is already largely priced in” by investors.

“We think valuations look full as we see further earnings downgrades as necessary for 2H20 and into 2021,” he said.

In contrast, Morgan Stanley's head of US equity strategy, is bullish “based on the equity-risk premium reaching the same levels observed in March 2009” when the US stock market began its post-financial crisis bull run.

Japan, Germany in recession

The Japanese economy has fallen into recession.

A report on Monday showed that the Japanese economy contracted by 0.9 percent in the first quarter. This followed a 1.9 percent decline in the fourth quarter of 2019.

After two consecutive quarterly declines in GDP, the Japanese economy is now tehnically in recession.

"We expect the worst is yet to come, with the state of emergency in Japan and the severity of the pandemic among Western nations continuing to derail the Japanese economy," said Naoya Oshikubo, senior economist at SuMi TRUST.

Last week, Germany reported that its economy shrank 2.2 percent in the first quarter. This followed a 0.1 percent contraction in the fourth quarter of last year, which means that Germany is also in a technical recession.

Elsewhere in the euro area, France and Italy, which have suffered more from the COVID-19 pandemic, had reported economic contractions of 5.8 percent and 4.7 percent in the first quarter respectively.

Markets rise amid grim economic data

Markets rose on Friday.

The S&P 500 rose 0.4 percent, the STOXX Europe 600 rose 0.5 percent and the Nikkei 225 rose 0.6 percent.

Economic data released on Friday were mostly grim.

In the US, retail sales fell 16.4 percent in April and industrial production fell 11.2 percent.

Eurozone GDP fell 3.8 percent in the first quarter.

However, China's industrial output rose 3.9 percent in April from the previous year. Retail sales, though, fell 7.5 percent.

Also encouraging was a rise in the University of Michigan's consumer sentiment index for the US to 73.7 in May based on a preliminary reading from 71.8 in April.

Jim Baird, chief investment officer at Plante Moran Financial Advisors, said that “the gradual lifting of restrictions across the country should signal a bottoming in the economy and the first steps toward recovery”.

Economy may have bottomed but COVID-19 virus “may never go away”

Markets were mixed on Thursday.

The S&P 500 rebounded from an early decline to finish 1.2 percent higher.

Earlier in the day, the STOXX Europe 600 plunged 2.2 percent and the Nikkei 225 tumbled 1.7 percent.

US stocks rose even as a report showed that weekly jobless claims rose by 2.98 million last week.

Diane Jaffee, senior portfolio manager at TCW, suggested that the economy has hit bottom but Minneapolis Federal Reserve President Neel Kashkari said that a “V-shaped recovery is off the table”.

“Stock pickers are just wildly guessing. At this point, I want to listen more to health experts than investors,” said Kashkari.

Unfortunately, some health experts are warning that the COVID-19 pandemic is not going away anytime soon.

“This virus just may become another endemic virus in our communities and this virus may never go away,” said Dr. Mike Ryan, executive director of the WHO's health emergencies program, at a media briefing in Geneva on Wednesday.

Markets fall as Powell describes downturn as “without modern precedent”

Markets fell on Wednesday.

The S&P 500 fell 1.8 percent, the STOXX Europe 600 fell 1.9 percent and the Nikkei 225 fell 0.5 percent.

Federal Reserve Chairman Jerome Powell said on Wednesday that the “scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II”.

This leaves stocks vulnerable to another significant pullback, especially with the market, especially in the US, already seen as expensive.

“The market is pretty high and the Fed has put a lot of money in here,” David Tepper, founder of Appaloosa Management, told CNBC on Wednesday. Before Wednesday’s sell-off, it was “maybe the second-most overvalued stock market I’ve ever seen,” he said.

On Tuesday, hedge fund manager Stanley Druckenmiller told the Economic Club of New York: “The risk-reward for equity is maybe as bad as I’ve seen it in my career.”

S&P 500 tumbles as US at risk of more “suffering and death”

Markets were mixed on Tuesday.

The S&P 500 tumbled 2.1 percent and the Nikkei 225 fell 0.1 percent but the STOXX Europe 600 rose 0.3 percent.

“The economic worries are still front and center here. Even though there are reopenings, they’re going to go slowly,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Indeed, Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases in the US, warned the Senate Health Committee that the US could face more “suffering and death” if states start to reopen too quickly.

“It’s hard to see equities powering further higher,” Rob Carnell, chief economist and head of research for Asia-Pacific at ING. “Any further dollops of stimulus are gonna be fairly marginal.”

Meanwhile, the US stock market's rebound from its March low has brought it back into expensive territory. According to Refinitiv, the S&P 500 now trades at 22.5 times projected earnings, the most expensive valuation since October 2000 during the bursting of the dotcom bubble.

Markets mixed amid renewed COVID-19 fears

Markets were mixed on Monday.

The S&P 500 was flat, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 rose 1.0 percent.

After a rally driven by hopes of economies reopening with the relaxation of restrictions imposed to curb the spread of COVID-19, investors turned cautious amid reports that some countries like Germany and South Korea are seeing an acceleration of new infections after easing restrictions.

Russ Mould, investment director at AJ Bell, said markets were realising that “the V-shaped recovery will not be as fast as expected”.

“I think it’s pretty clear that if you open too fast, it’s going to have significant consequences,” said Michael Yoshikami, founder and CEO of Destination Wealth Management.

While many are calling the resurgence in cases a second wave, Jung Eun-Kyeong, director-general of South Korea's Centers for Disease Control and Prevention, said that this is not correct as the “first wave has not ended”.

Jung said that the second wave will come in autumn or winter.

COVID-19 pandemic: “It’s not over until it’s over”

Stocks rose last week, with the S&P 500 rising 3.5 percent.

Stocks rose despite grim economic data released last week, including a report on Friday that showed that the US economy lost 20.5 million jobs in April.

Instead, investors appear to be focused on the expected economic recovery as countries begin or plan to remove restrictions on activities that had been put in place to contain the spread of COVID-19.

However, the experiences of some countries that have so far been among the more successful in containing the disease suggest caution is warranted.

South Korea reported 34 new COVID-19 cases on Sunday, the highest daily number in a month. 26 were domestically transmitted infections while eight were imported cases.

The resurgence came as South Korea eased some social distancing restrictions and is seeking to fully reopen schools and businesses after the daily tally of cases had hovered around 10 or less in recent weeks.

“It’s not over until it’s over,” said South Korean President Moon Jae-in. “While keeping enhanced alertness till the end, we must never lower our guard regarding epidemic prevention.”

New COVID-19 infections also appear to be rising in Germany just days after the country eased social restrictions.

Over the weekend, the Robert Koch Institute reported that its estimate of the reproduction number of the disease, that is, the number of people infected by each case, is 1.1. It had been below 1 for most of the last three weeks.

US stocks jump as employment dives

Markets rose on Friday.

The S&P 500 jumped 1.7 percent, the STOXX Europe 600 rose 0.9 percent and the Nikkei 225 surged 2.6 percent.

Investors shrugged off a report on Friday showing that the US economy lost 20.5 million jobs in April and the unemployment rate shot up to 14.7 percent.

“While this pandemic has the potential to create economic conditions that are as bad or worse than the Great Depression, the steps that the Federal Reserve Bank has already taken, coupled with the stimulus that Washington is also providing, are the main reasons why we are unlikely to re-experience that terrible time in world history”, said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

Indeed, the US economy may already be recovering some jobs. Data from scheduling software company Homebase showed that while employment on 5 May was down 51 percent from before the COVID-19 shutdown, this is actually better than the 74 percent decline registered on 12 April, the worst day.

However, Sat Duhra, portfolio manager of Asia dividend income strategy at Janus Henderson Investors, told CNBC not to expect a V-shaped recovery in the economy.

“We’ve seen a bit of a V-shaped recovery in markets but that’s not how the real economy will behave,” he said.

China exports rise, US unemployment surges, UK faces biggest slump in 300 years

Markets were mostly higher on Thursday.

The S&P 500 rose 1.2 percent, the STOXX Europe 600 rose 1.1 percent and the Nikkei 225 rose 0.3 percent.

However, the Shanghai Composite fell 0.2 percent despite a report on Thursday showing that Chinese exports rose 3.5 percent in April from a year ago.

“We think the pick-up in exports is temporary and export momentum will fall in the coming months,” wrote economists at Oxford Economics.

In the US, investors shrugged off a report showing that almost 3.2 million people applied for unemployment benefits last week, bringing the total job losses amid the COVID-19 pandemic to over 33 million.

In Europe, the Bank of England left interest rates at 0.1 percent after its monetary policy meeting on Thursday but said it stands ready to take further action if deemed necessary.

The BoE mentioned that the UK economy is at risk of seeing output shrink by 14 percent in 2020, its biggest slump in over 300 years.

Earlier in the week, data had shown that the UK's COVID-19 death toll has overtaken Italy to become the highest in Europe.

Economic news at “bottom” but “market valuations no longer as attractive”

Markets fell on Wednesday.

The S&P 500 fell 0.7 percent and the STOXX Europe 600 fell 0.4 percent.

A report from ADP on Wednesday showed that US private-sector employers shed more than 20 million jobs in April.

However, market reaction was relatively muted as many appear to be looking beyond April data.

“As investors, we see this Friday’s employment report, which will show a job loss of 21 million people, as marking the bottom for terrible economic news,” wrote Bryce Doty, a senior portfolio manager at Sit Fixed Income Advisors. “So, ironically, we are becoming more optimistic about the future.”

“The stock market is certainly pricing in the beginning of a downtrend in new virus cases for the U.S. as a whole,” wrote Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

Still, some analysts note that the US stock market has become expensive.

“While we are encouraged by the stabilization of new COVID-19 cases and the massive stimulus put in place, stock market valuations are no longer as attractive,” wrote Jeff Buchbinder, equity strategist at LPL Financial, in a Wednesday research note.

Also, an economic recovery may not allow corporate earnings to recover as much as some think.

“While it’s possible that 2020 forecasts have been cut enough, we are concerned that 2021 numbers now need to be cut more aggressively,” wrote Lori Calvanasi, head of US equity strategy at RBC Capital Markets, in a Wednesday note. “We have serious doubts about whether S&P 500 profitability will be able to surpass pre-coronavirus crisis levels in 2021.”

Markets rise, “demand bottom behind us”

Markets rose on Tuesday.

The S&P 500 rose 0.9 percent and the STOXX Europe 600 jumped 2.2 percent.

Oil prices surged. West Texas Intermediate crude jumped 20.5 percent and Brent rose 13.9 percent.

“The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise,” wrote Magnus Nysveen, head of analysis at Rystad Energy.

Chicago Fed President Charles Evans said on Tuesday that the US economy may return to growth in the second half of the year as businesses open up again after the lockdowns to combat the COVID-19 pandemic.

Evans added that “I can’t imagine that anybody is expecting the Fed to raise the interest rates over any relevant time horizon”.

Indeed, St Louis Fed President James Bullard said that he thought the Fed’s benchmark interest rate would stay near zero for “years”, not “months”.

Bullard said that the US unemployment rate could exceed 20 percent in the second quarter, the third quarter will be a “transition” period and “by the time we get to the fourth quarter I would hope that you could have an end to the crisis and put this behind us”.

US stocks rebound amid easing of curbs

Markets were mixed on Monday.

The STOXX Europe 600 plunged 2.7 percent after the US criticised China on Sunday for allowing the coronavirus causing COVID-19 to emerge from a Chinese laboratory.

However, the S&P 500 rebounded from an early decline to close 0.4 percent higher.

“Some regional openings in California helped financial markets end the day on a positive note,” said Edward Moya, senior market analyst at OANDA.

Ohio and other states were also easing more curbs on businesses while outside the US, Italy, among the world’s hardest-hit countries, allowed about 4.5 million people to return to work.

Meanwhile, though, economic data remained grim, with IHS Markit reporting that its final manufacturing PMI for the euro zone sank to 33.4, its lowest since the survey began in mid-1997.

Peak in US COVID-19 cases also means “peak infectivity”

The S&P 500 fell 0.2 percent last week, its second consecutive weekly decline.

Stocks enjoyed gains early in the week on hopes of the relaxation of restrictions imposed on economies to curb the spread of COVID-19.

However, those gains were reversed in the latter part of the week, with the S&P 500 falling particularly hard on Friday by 2.8 percent.

Indeed, even as Americans began to take advantage of the relaxation of restrictions, some are worried that the pandemic could yet worsen.

“We expected that we would start seeing more significant declines in new cases and deaths around the nation at this point. And we’re just not seeing that,” said Scott Gottlieb, a former Food and Drug Administration commissioner. “If we don’t snuff this out more and you have this slow burn of infection, it can ignite at any time.”

Indeed, John Hussman, president of Hussman Invesment Trust, pointed out in his latest article that while the US rate of new infections of COVID-19 may have hit a peak, “relaxing containment at the point of ‘peak’ daily new cases also means relaxing containment at the point of peak infectivity”.

He added that while he had considered the possibility of fewer than 60,000 US fatalities a few weeks ago, “we’re now looking at the likelihood of about 90,000 by mid-year, with the potential for far greater numbers if containment is eased without offsetting practices”.

With regards to market conditions, Hussman views the recent advance as a “clearing rally” to relieve an oversold compression.

However, extreme valuations, divergent market internals and overextended conditions have created a “trap door” situation that, when seen over the past two decades, have had “unfortunate consequences”.

Markets fall as US manufacturing shrinks further

Markets fell on Friday, with both the S&P 500 and Nikkei 225 tumbling 2.8 percent.

Most European markets were closed for a holiday.

“After one of the best months in history, it’s not overly surprising to see some profit taking here,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management.

News that the US government is considering proposals for punishing China for its handling of the COVID-19 pandemic added to downward pressure on stocks.

Miskin said that “even more strains to supply chains in the form of tariffs is rightfully being priced into the market negatively”.

Indeed, the strain on the US economy is already showing in the Institute for Supply Management's manufacturing index, which fell to 41.5 in April from 49.1 in March. The index for new orders dropped 15.1 to 27.1, the biggest monthly drop since 1951.

The IHS Markit US manufacturing PMI fell to 36.1 in April from 48.5 in March.

Markets lower, euro area faces “unprecedented” contraction

Markets were mostly lower on Thursday.

The S&P 500 fell 0.9 percent and the STOXX Europe 600 tumbled 2.0 percent.

Earlier in Asia, though, the Shanghai Composite rose 1.3 percent and the Nikkei 225 jumped 2.1 percent.

The European Central Bank left interest rates unchanged at its monetary policy meeting on Thursday but said it would make long-term loans to banks even cheaper and would set up a new shorter-term liquidity operation.

Eurozone GDP fell 3.8 percent in the first quarter and ECB President Christine Lagarde said it could shrink by 5 to 12 percent this year.

“The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime,” said Lagarde.