29-5-2020 10:32:32US equity indices tumbled over 4% on the first trading day in April, resuming its downward trajectory after perhaps a ‘false rally’ seen at the end of March.

New York’s Governor, Andrew Cuomo warns that the infection cases in the state may not peak until the end of April, alongside Trump’s warning of ‘two bad weeks’ ahead, dampens sentiment.

Last night’s ADP payroll report has beaten market expectations with only a 27k drop in private hiring, versus a -150k forecast. This report, however, failed to lift confidence as investors might think more pain is ahead. This Friday, we may see a sharp reversion down in the US nonfarm payroll figure, which is expected to hit -100k. On the positive side, US congress is discussing a $760 billion infrastructure spending bill to be concluded at the end of April to foster the jobs market.

European manufacturing PMIs dived deeper into contraction territory in March as Covid-19 destroyed both domestic and external demand and disrupted global supply chains. This might prove to be just the beginning of a prolonged manufacturing recession as the Covid-19 pandemic show no signs of subsiding any time soon.

On the flip side, both official and private manufacturing PMIs in China unexpectedly bounced back to the expansionary territory above 50 in March. A clear divergence in manufacturing sentiment has strengthened both CNH and China mainland equities. However, this bounce might not last for too long as export orders in the coastal provinces slumped abruptly in March. Domestic consumption also remains fragile as ‘non-symptomatic infections’ deter people’s willingness to go out.  

WTI crude oil prices bounced mildly to US$ 21 area overnight, as US urges Saudi Araba and Russia to start oil talks to address the falling prices. There is still a long way to go before any output cut agreement is struck, as the top priority seems to be gaining market share among major producers. At the current price, many US oil exploring energy companies won’t be able to make a profit and drilling activities might fall in North America.  

The rush for cash and dollar is back as reflected in both the rising dollar and stock market volatility. Recently, as major countries pledged massive fiscal stimulus, non-US state sovereign funds may face redemption pressure as governments need cash to fund fiscal and healthcare needs. Institutional selling pressure is what we need to be concerned of as they are much more impactful on index components.

US dollar index – June 2020