“Bad news is good news” is back again. The slowdown in the manufacturing PMI in April boosted risk market sentiment, with the overall data falling below 50, lower than the expected 52, mainly due to weak performance in new orders (49.5 vs 52.6), output (51.1 vs 54) and employment (51.9 vs 52.2). The service PMI released later also unexpectedly weakened to 50.9, lower than the expected 51.7, with new business and employment (47.3 vs 51.1) falling sharply, the latter falling to the lowest level since the epidemic.
US bonds rebounded, and the 2-year yield showed a steep bull trend, falling from around 5% to 4.92%. The US dollar also weakened, with the euro against the US dollar above 1.07 and the US dollar against the Japanese yen below 154.85. Weak economic data rekindled hopes for a rate cut, and technology stocks led the stock market rebound, with technology stocks rising by 1.5%.
More concerning, the official commentary from S&P economists said that recent economic activity “is likely to slow in the coming months as new business inflows fell in April for the first time in six months,” which “has prompted companies to cut jobs at a pace not seen since the global financial crisis (except during the pandemic).” This is indeed a sobering outlook.
In a sign of further short squeeze, Tesla rose 13% after hours following its first quarter earnings report, despite its profit, revenue and margins falling well short of market expectations. The company’s global inventory jumped from 15 days to 28 days, showing signs of slowing demand, but judging by the price action, investors were well prepared for a weak earnings report.
Elsewhere, some optimism has returned to the region, with the HSI and HSCEI outperforming most developed market indices last week for the first time in a long time. Southbound inflows to Hong Kong have been positive in all but one week since the Lunar New Year, suggesting that the regulatory actions following the supportive policy shift earlier this year are indeed having some substantial positive impact.
Crypto prices remain strong, with BTC once again approaching $67,000 and altcoins rebounding 10–20% over the past week. While some may view the halving as a major positive factor driving the market, we believe that the multiple drops in prices to the $60,000 level have cleared out a large number of short-term longs, exacerbating the current short squeeze. Prices are expected to reflect the recovery in stock market sentiment in the coming days until the PCE data is released, when weaker data may serve as a catalyst for BTC to pull back above $70,000. Good luck!
