For equity investors, the most striking event last week was the sudden plunge on Wall Street, which slid by almost 3% on 1 May after the market gave the thumbs down to current-quarter guidance from tech majors of the likes of Apple and Amazon. In any case, indices in April had pulled back considerably from their March lows, with the S&P 400 rising by 12.7% – clawing back half its losses – and the Stoxx 500 and the SPI gaining by 6.7% and 5.2% respectively. Most of this relief rally was powered by fiscal and monetary splurges, coupled with the prospect that new Covid-19 cases may have peaked. Investors are probably now questioning whether the market recovery has the stamina to continue. Fears about the global economy are mounting. A surge in new virus cases following the easing of lockdown measures could send the global economy into a tailspin.

Washington and Beijing are at loggerheads again, as part of a blame game for who is behind the coronavirus. According to Mike Pompeo, Secretary of State, on ABC TV, the coronavirus originated from a laboratory in Wuhan, with the purported aim of stealing a march on the rest of the world. The US is considering retaliatory trade measures, including a raft of new duties, while issuing a reminder that under ‘phase 1’ of last year’s agreement, the Chinese are duty bound to buy US goods. If you thought the tensions in financial markets caused by the trade war were bad last year, worse may still be to come.

Doubts are becoming prevalent pending the effects of ‘phase 2’ on the economic situation, as illustrated by the steady collapse in crude oil prices. Economic stats are in a dire state. US consumer spending nosedived by 7.6% in the first quarter and manufacturing indicators fell sharply. With a Covid-19 vaccine probably more than a year away, it is unclear whether the economy can get back on its feet again. All will depend on how the relaxation of lockdown measures unfolds.

On the earnings side, 55% of S&P 500 companies have reported first-quarter numbers. On average these have been 2.5% below expectations. The 16% drop in earnings versus the same period last year is staggering but the overall figure was dragged down by specific sectors such as airlines and oil companies. For the second quarter, a 13% contraction in earnings is expected by the consensus. On Friday, US employment figures for April will be released. Expectations are for 22 million job losses, with the unemployment rate rising to an unprecedented 16%.
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