‘Bad news is good news’ again with risk markets cheering a slowdown in the S&P manufacturing PMI, with the headline dropping below 50 versus expectations of 52. Weakness was driven across new orders (49.5 vs 52.6), outputs, (51.1 vs 54) and some slowdown in employment (51.9 vs 52.2). Furthermore, the subsequent services PMI release also surprised weaker at 50.9 vs 51.7 expectations, with significant drops in new business and especially employment (47.3 vs 51.1), with the latter reaching the lowest levels since covid.
Treasuries rebounded in response, with 2yr yields dropping from ~5% back down toward 4.92% in a bull steepening manner. USD also weakened in response with EUR trading above 1.07 and USDJPY holding below 154.85. Tech stocks led the intraday rally with the soft data re-igniting some hopes for rate cuts again, with tech stocks adding +1.5%.
Most importantly, official commentary from a S&P economist stated that recent pace of activity “may be lost in the coming months, as April saw inflows of new business fall for the first time in six months”, which has “prompted companies to cut payroll numbers at a rate not seen since the GFC” outside of the covid period. A sobering outlook indeed.
Furthermore, as a sign of further short-squeezes, Tesla added +13% after-markets post their Q1 earnings, despite profit, revenue, and margin all grossly missing estimates. Global inventory jumped to 28 days vs 15 last quarter as a sign of slowing demand, though the price action would suggest that investors are well positioned against the weaker release already.
Elsewhere, investors are cheering on some optimism back into our region as HSI and HSCEI have outperformed most developed market indices last week, the first time in a long time. Southbound flows into HK has been positive every single week except for 1 since the Chinese new year break, suggestive of some real follow through action from authorities since the bullish policy turn earlier in the year.
Crypto prices have continued to stay strong with BTC creeping back towards 67k again with altcoins rallying back 10–20% over the past week. While some might attribute the halving as a positive analyst, we think the multiple flushes down to 60k have taken out a lot of near-term longs, which has fueled the current short-squeeze despite ETFs being a non-factor. Expect prices to mirror the recovery in equity sentiment over the next few days until PCE, where a soft print might be the catalyst we need to take BTC back above $70k. Fingers crossed!
