5 things to start your day

Five Things

The pandemic is likely to last years, less good tech results, and Trump's campaign against China continues. 

Going nowhere

A report from a group of experts at the Center for Infectious Disease Research and Policy at the University of Minnesota has warned that the coronavirus pandemic is likely to last as long as two years. As people may be at their most infectious before they display any symptoms, controlling the outbreak is much more difficult, the report warned. It is probably unlikely that the warning will cause politicians to further delay their plans to reopen economies as the costs continue to mount from the shutdown. Authorities are focusing on finding a vaccine amid the move to ease lockdowns around the world. 

Sour Apple?

The stellar run for tech earnings ground to a halt yesterday after Apple Inc. didn't provide a forecast for the first time in years and Amazon.com Inc. Chief Executive Officer Jeff Bezos said his company was navigating "the hardest time we've ever faced." Shares in Apple were 3% lower in pre-market trading despite CEO Tim Cook suggesting things had turned around for the consumer electronics giant in April. 

China fund

President Donald Trump seems to be resuming his campaign against China by exploring options to block a government retirement fund from investing in Chinese equities, according to a person familiar with the internal deliberations. Trump told reporters he could also use tariffs to hit the country as he speculated China could have spread the coronavirus. The reemergence of trade tensions onto an already devastated economic landscape saw investors buying traditional havens with Treasuries rising and the dollar and yen posting gains. 

Markets drop

Global equity trading is very quiet this morning, with much of Asia and Europe closed for a holiday. Those that are open are seeing little reason for cheer. In Asia, Japan's Topix index closed 2.2% lower ahead of a three-day break for Golden Week. In Europe, the U.K.'s FTSE 100 Index had dropped 2.2% by 5:50 a.m. Eastern Time. S&P 500 futures pointed to a similar fall at the open, the 10-year Treasury yield was at 0.605% and gold slipped. Oil gave up early-session gains, while remaining on track for its first weekly gain in a month

Coming up…

U.S. April manufacturing PMI is at 9:45 a.m., with ISM manufacturing and March construction spending at 10:00 a.m. The Baker Hughes rig count at 1:00 p.m. will be closely watched after last week's plunge in activity. Speaking of oil, Chevron Corp., Exxon Mobil Corp. and Phillips 66 are among the many companies reporting. U.S. auto sales numbers for April will be released by manufacturers. The Bank of Canada is expected to find out who Prime Minister Justin Trudeau's government have selected as its new leader today

What we've been reading

This is what's caught our eye over the last 24 hours.

And finally, here's what Luke's interested in this morning

The Great Rotation of European Central Bank President Christine Lagarde: Six weeks ago, she was saying that the central bank was not here to close the spread between core European yields and those on the periphery. Now, she's giving banks money to help make that spread disappear. The ECB introduced a new facility (PELTROs) that effectively gives banks no-strings-attached access to cheap funding. It's expected to result in a revival of the "Sarko trade," according to Ben Emons of Medley Global Advisors. That's a reference to the former French President Nicholas Sarkozy pointing out how the ECB's actions encouraged banks to embark upon a profitable carry trade by buying the bonds of their sovereigns.

"The ECB was specific about the purpose of the PELTRO: 'providing an effective liquidity backstop'," Emons writes. "The new funding is therefore a 'giveaway' to banks who are free to use the funds to buy government bonds."

It means that in effect, while the Fed is buying oodles of American government debt, the ECB is getting banks to do it for them. But because markets expected an enhanced asset purchasing program and got something else, the reaction was mixed to negative. While two-year Italian bond yields did reverse an initial jump to finish well lower, European bank stocks were hammered. It's as if investors ordered a Berliner and turned up their noses at the cannolis that appeared on their table instead.

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