Data that showed Chinese industrial profits crashed in March and the US overtaking China in the number of coronavirus cases is causing some to second-guess recent optimism.

European markets have a softer tone on Friday and there is slight haven bid with the Japanese yen moving higher and US Treasury yields lower.

Wall Street just had its best 3-day rally since the 1930s with the SP 500 up 6.2% on Thursday. The Senate passing the $2 trillion US stimulus bill was enough for investors to overlooks a truly shocking rise in US unemployment insurance claims.

The spike in jobless claims and its negative implications for the US economy has shifted the bias in the dollar to negative for the time being. Americans claiming jobless insurance from the government was the highest ever at 3.28 million. The dollar has been well bid as a haven asset during the coronavirus outbreak but the hit to the US economy itself has to date been underappreciated.

In a warning about what could be coming down the tracks for the West, China industrial profits just slumped nearly 40%. Seeing a figure as bad as that, it’s understandable why other leaders, notably US President Donald Trump are reluctant to shutdown economy. Trump said has suggested reopening certain parts of the country like the farm belt of parts of the mid-west unaffected.

The current calculus seems to be based on the West repeating China’s coronavirus experience. That is experiencing a lockdown period of similar length to China and a similar lifecycle of rising then falling virus cases. If that’s wrong and it takes longer, markets need to readjust with another leg lower

The United States has more cases and Italy has a higher death toll from the coronavirus than China. Either China’s numbers don’t tell the whole story and/or its harsher lockdown measures were more efficient. Both explanations lead us to fear the lockdowns in the West will extend beyond Easter, making the existing government support not be enough. Buddy the Elf might tell this market recovery “You sit on a throne of lies!”

 

Looking for today

Italy consumer confidence data

House to vote on US spending bill

 

Opening calls

FTSE set to open 123 points lower at 5692

DAX set to open 114 points lower at 9886

SP 500 to open 38 points lower at 2592

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