Wall Street is closing out the week on a terrible note as trade concerns grow, and horrid data encouraged investors to head for the sidelines. Risk aversion is a three-headed monster today, with renewed trade tensions between the world’s two largest economies, record low readings for both U.S. retail sales and industrial production, and partisan politics likely delaying the next tranche of stimulus.
Trade
U.S. President Donald Trump appears determined to keep the pressure on China, despite what immediate impact it could have with the economy and stock market. In what many believed, was a vulnerable period for the world, including the U.S., leniency was somewhat expected from the U.S. to China in delivering their share of the phase-one trade deal. Trump’s crackdown on Huawei blocks key supplies needed for its new high-speed wireless networks. China has signalled counter-measures will be placed on U.S. companies such as Qualcomm (NASDAQ:QCOM), Cisco (NASDAQ:CSCO) and Apple (NASDAQ:AAPL), and the suspension of purchase of Boeing (NYSE:BA) airplanes.
The Commerce Department’s changing of the export rule also punishes Taiwan’s TSMC. Yesterday, TSMC confirmed they will build a semiconductor lab in Arizona, a commitment of $12 billion in costs, that will create 1,600 jobs. While tensions between the U.S. and China continue to heat up, expectations are still high the relationship will remain intact as both economies are intertwined. Trump’s escalation may have kept the pressure on China for holding up their end of the phase-one trade deal.
Horrid Data
U.S. economic for the month of April was disastrous, adding to fears of permanent damage to the economy. Retails sales broke last month’s record dive, while industrial production had its worst reading in the series 101-year history. The U.S. consumer is beyond vulnerable and the economic rebound will likely see a slow return of factory jobs.
One bright spot was the preliminary University of Michigan consumer sentiment survey. The headline surprisingly rebounded, current economic conditions rose sharply, and expectations index declined less than feared. This is just one data point, but it reminds traders that May economic data will show signs of improvement.
Stimulus
The U.S. Congress will vote on a $3-trillion relief package that will eventually fail to pass the Republican Senate. The proposed bill would provide another $1,200 stimulus cheque, hazard pay, extended unemployment, and more funding for testing. Republicans want to wait and see how the four massive stimulus packages are helping the economy, or perhaps need more time to write their own bill. For most economists, it seems very likely that more fiscal support is warranted, partisan politics, however, likely see the next round of support take a lot longer than initial response the coronavirus pandemic.
Oil
WTI crude neared a two-month high as China’s industrial output rose for the first time since the coronavirus pandemic, fueling hope that crude demand will soon improve in Europe and then the US. China remains the template for the economic recovery for the rest of the world and last night’s data gave energy traders some hope that demand will begin to recover over the coming weeks.
Oil prices extended gains after OPEC Secretary General Mohammad Barkindo noted that the worst of the oil crisis is over. Barkindo said all the right things: OPEC + nations are rapidly cutting production and that all options for cuts in June are on the table.
WTI crude will struggle to break above and stay above the $30 level until fears of renewed COVID-19 outbreaks are eased.
Gold
Gold continues to rise as grim milestones are reached with U.S. economic data. Record lows with retail sales and industrial production, along with escalating tensions between the U.S. and China should continue to support higher gold prices.
Gold dipped during the New York open on mild profit-taking and as equities saw a bounce, but that should not derail investors from holding positions over the weekend. Gold continues to have a beautiful backdrop of continued fiscal and monetary stimulus getting pumped into the global economy. The U.S. will be slow with the next fiscal stimulus response, but next week will see further rate cuts from Indonesia, Thailand, Turkey and South Africa.
Bitcoin
A tentative respect of $10,000 appears to be the only thing slowing down Bitcoin's growing momentum. The largest cryptocurrency in the world is down slightly on what is a slow news day in the crypto-space. The fundamentals and growing institutional interest continue to support higher prices over the short term.