(05 MAY 2020)DAILY MARKET BRIEF 1:he European indices started the week with sharp losses

The European indices started the week with sharp losses; the DAX (-3.64%) and CAC 40%( -4.24%) were hammered on worries that the renewed tensions between the US and China would prevent the shattered global economy from recovering at a plausible speed.

But the US stocks did better in New York, especially towards the end of Monday’s session. The Dow (+0.11%) and the S&P500 (+0.43%) closed in the positive territory, as Nasdaq was boosted by decent gains in Apple (+1.42%) and Microsoft (+2.45%) shares.

The economic data was not painting a rosy picture, however. The European PMI data confirmed the sharpest contraction in activity on record, as the US factory orders tumbled by more than 10% m-o-m in March, roughly in line with -9.7% expected by analysts.

The US treasury is preparing to boost borrowing by $3 trillion dollars from April to June to finance the exploding government stimulus and there is certainly more to come.

Elsewhere, the Australian construction index and services PMI tanked to record low levels in April as well. The Reserve Bank of Australia (RBA) maintained its interest rates unchanged at today’s monetary policy meeting, as the bank has already done a lot to fight back the coronavirus-led slowdown, especially through massive government bond purchases to inject cash in the economy. The bank widened the range of eligible collateral for repo operations to include a broader range of investment grade AUD-denominated securities issued by non-bank corporations. The AUDUSD rebounded past 64 cents but the Aussie should bump into some resistance into the 64.90 cents, the 100-day moving average, as the uncertain global risk appetite may disservice the beta-currencies amid the rising tensions between the US and China.
More data is due today.
The US services PMI and ISM non-manufacturing index should continue painting a gray picture, while the US trade deficit is expected to have risen to $44 billion in March. The US officials are pressuring China to meet its phase-one deal obligations, including massive farm product purchases, but China first needs to heal itself from the coronavirus-crisis. Nevertheless, we believe that China is ready to do its best to avoid spoiling its fragile relationship with the US, despite accusations that they have intentionally created the coronavirus in a Wuhan lab. Both economies need each other to heal fast, which could lead China to swallow its pride to a certain extent.

By Ipek Ozkardeskaya