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Top 5 Things to Know in the Market on Monday, May 4th

Published 2020-05-04, 06:25 a/m
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By Geoffrey Smith 

Investing.com -- Happy Star Wars day (May the 4th be with you)! Markets are suffering after President Trump revived the prospect of trade measures against China as punishment for its role in the Covid-19 pandemic. Warren Buffett has bailed on U.S. airlines and can't find anything he wants to buy, even at the recent depressed valuations. Europe is coming further and further out of lockdown, but Russia's troubles with the disease are going from bad to worse. And earnings season continues with updates from Tyson Foods (NYSE:TSN) and Oaktree Capital. Here's what you need to know in financial markets on Monday, May 4th.

1. Trump, Pompeo lash out at China as death toll rises

U.S. President Donald Trump revived the prospect of further trade measures against China to punish it for perceived shortcomings in its handling of the Covid-19 outbreak. He also threatened to rip up last year’s trade deal with China if it failed to honor its commitment to buy U.S. goods in the promised volumes.

“They took advantage of our country. Now they have to buy and, if they don't buy, we will terminate the deal,” Trump said in a virtual town hall meeting with Fox (NASDAQ:FOX) News.

Both Trump and Secretary of State Mike Pompeo (the latter talking to ABC) repeated accusations that the virus had originated in a laboratory in Wuhan. Neither presented fresh evidence to support the claim, which China denies.

2. Springtime in Europe (Russia not included)

Lockdowns in Europe eased further as the death toll from the Covid-19 virus fell to its lowest in two months in most of the region’s biggest economies.

Italy, the worst-hit country, reopened its parks and restaurants and lifted a ban on personal visits. Spain also eased its lockdowns while German churches reopened on a weekend when the government also announced plans to reopen playgrounds and other outdoor spaces.

The outlier to the trend in Europe is Russia, where the number of new infections continued to rise sharply at the weekend. The Russian ruble, which is stull laboring under the impact of low oil prices, fell to its lowest against the dollar in nearly two weeks.

3. Stocks set to open lower; dollar strengthens

U.S. stocks are set to open lower under the impact of the administration’s comments on China at the weekend, coupled with Trump’s further admission that the U.S. death toll could reach 100,000.

By 6:30 AM ET (1030 GMT), the Dow Jones 30 Futures contract was down 240 points, or 1.0%, extending losses after the abrupt sell-off on Friday. The S&P 500 Futures contract was down 0.8% and the Nasdaq 100 futures contract was down 0.7%..

The dollar, meanwhile, weakened against the yen but rose against higher-yielding currencies. The dollar index that tracks the greenback against a basket of developed market currencies rose 0.4% to 99.42. Gold futures rose 1.1% to $1,718.95 an ounce while Treasury yields fell and European sovereign spreads widened, amid concern over a German court ruling on Tuesday on the legality of the ECB’s bond purchases.

4. Buffett dumps airline stocks

Legendary investor Warren Buffett backed the U.S. and world economy to avoid a worst-case scenarios outlined by others earlier in the year as the Covid-19 pandemic erupted. He cited “the American magic”.

At the annual meeting of his company Berkshire Hathaway (NYSE:BRKa), Buffett said it had sold all its airline stock in the last quarter, fearful that the long-term outlook for the industry has changed for the worse. American Airlines (NASDAQ:AAL) and Southwest (NYSE:LUV) were both down over 7% in premarket trade on the comments, while United Airlines  (NASDAQ:UAL) and Delta  (NYSE:DAL) were both down over 9%.

Buffett also had to defend himself against criticism for a lack of deal-making, despite a wholesale sell-off in markets.

“We haven’t seen anything attractive,” Buffett said. Berkshire has been stung by a couple of big bets that have turned sour in recent years, notably its acquisition of Kraft Heinz (NASDAQ:KHC) with Brazil’s 3G, and its support for Occidental (NYSE:OXY) Petroleum’s debt-funded acquisition of Anadarko last year.

5. Tyson Foods, Oaktree lead earnings roster

Earnings season resumes on Monday with Oaktree Capital, the investment firm of Buffett’s fellow investment guru Howard Marks.

Other updates of interest will include Tyson Foods, the closure of whose meat plants led to presidential intervention last week to keep them open, and Sprint, ahead of its planned merger with T-Mobile later this year. There are also earnings due from insurance giant AIG (NYSE:AIG) and Chinese Netflix-wannabe IQIYI, whose accounting practices were recently attacked by short seller Muddy Waters (NYSE:WAT) Research.

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