The models are broken
The market is trying to get back to the pre-Covid and pre-war times, but that model is broken. A new dawn is here and the financial world needs to adapt.
Steen Jakobsen,
Chief Investment Officer
Chief Investment Officer
Summary: Equities slumped yesterday and were considerably lower still after the close in the wake of Apple and Amazon earnings reports that failed to bring the kind of positive spin that was in evidence from major earnings earlier in the week. The technical reversal is the first somewhat clear technical development in weeks. Today is key for establishing the weekly close levels.
Today sees an important weekly close for US equity markets, as we note below – continental European markets are closed for the May 1 holiday.
What is our trading focus?
What is going on?
The ECB meeting saw the ECB swinging into gear with more new policy moves than were expected even as it left the interest rate unchanged, as the bank lowered the TLTRO rates and added a Pandemic Emergency TLRO, or PELTRO, to lend . The interest rate is as low as -1.00% to incentivize banks to lend.
Apple and especially Amazon earnings have set a negative tone coming into the final day for the week as noted above. Yesterday’s big batch of earnings completes the vast majority of the big names to report this week, though we have the largest two US oil majors reporting earnings today.
US weekly jobless claims were out at 3.8M – but do note that continuing claims rose 1.7M less than the new claims, suggesting some of those laid off in previous weeks have found new employment. In the coming weeks, this data point an important one in reflecting the shape of the US recovery.
German April Unemployment Change worst ever at +375k – and German unemployment shot up to 5.8% from 5.0% in March. The European labour market is much “stickier” than the US market, but the massive jump of unemployment change to +375k in April shows that even in Germany, one of the least hard-hit of major EU countries on what is widely considered a model response to the Covid19 outbreak, layoffs are widespread.
What we are watching next?
Exxon (XOM:arcx) and Chevron (CVX:arcx) earnings – these are the two largest US oil majors and it will be interesting to see their outlooks and levels of capital investment intentions. Chevron which has jumped by 70% since the March low, reports before the market opens and Exxon (up 48%) is set to report at 11:30 New York time.
Next week US Apr. ISM Non-manufacturing employment data and ISM N The ISM manufacturing data point set for release today but likely to get little notice, as the dominant services sector is so critical for the US economy. On that note, next Tuesday will provide the benchmark level for the ISM non-manufacturing survey from which activity is likely to improve as the US opens up – but at what pace. Similarly, next Friday will bring the benchmark unemployment rate for the cycle. US Bloomberg expectations for the US Nonfarm Payrolls change is running at -22 million, more than 20 times the worst ever single month reading, and the unemployment rate expected to rise to 16.3%.
US-China relationship – rising signs of bad blood between the two great powers has largely gone un-noticed, but it appears US President Trump is swinging around to the more negative statements on China that party members have long urged him to, and a renewed blast of tariffs or similar from the Trump administration could set the market on edge at any moment.
Economic Calendar Highlights (times GMT)
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