Stumbling into May after running too fast - Full article attached
The start of May, with a number of countries observing holidays, is being marked by a sharp retreat in global equities. This follows disappointing results from Amazon, Apple’s decision to withhold guidance for the current quarter and frosty US-China relations testing market sentiment.
Political tension between the US and China is flaring anew with President Donald Trump raising the prospect of deploying an old weapon: trade tariffs. The White House has squashed chatter of the US cancelling its debt with China, frankly the last thing the global financial system needs at this point.
Still, one of the ramifications of Covid-19 is an acceleration of the new cold war between the US and China. This year’s US presidential contest will be dominated by a China-bashing contest and upping pressure on companies that manufacture and/or sell goods and services across the Pacific.
For markets, the pressure shows up in the exchange rate. The offshore renminbi on Friday weakened 0.7 per cent to Rmb7.1269, its largest daily move since March (China along with much of Europe is observing May Day), although there are limits to such moves given the current macro backdrop.
Alan Ruskin at Deutsche Bank says “the broader US dollar uptrend has weakened with the Fed’s aggressive actions” and he suggests the renminbi can tag along. Or as he adds: