The slide in equities and US Treasury yields accelerated last week; the 10-year saw yields fall 20 basis points to 2.12%: in a fifth straight week of strengthening from 2.6% in mid-April and demonstrating a strong seven-month trend from November 2018 highs above 3.2%. the S&P 500 had its fourth down week in a row, down 2.6%, and its worst since the tumult around Christmas 2018. Meanwhile, German 10-year Bund yields hit all-time lows of -0.206%: even lower than the negative yields back in mid-2016 when the US 10-year yielded 1.35%. Other negative sentiment signals this week include the Japanese yen strengthening 1% to 108.3 against the dollar, and Emerging Market spreads widening 15-20 basis points (contributing to spreads around 10% higher than at the start of the month but with yields broadly unchanged as risk-off assets rally in isolation).
Trade concerns were the major contributor to the market fear with, not only talks completely breaking down between the US and China last week, but the US threatening to impose tariffs on “all goods” out of Mexico after a group of migrants, numbering over a thousand, were caught crossing the border illegally. Tariffs will start at 5% next week rising steadily to 25% by October. Alongside the trade policy instability, China saw its manufacturing PMI drop to 49.4 as PMIs in retreat globally; further PMI data is also out in the week ahead.
On Monday numerous manufacturing PMI readings are published across the Eurozone, US and China; Tuesday sees the interest rate decision from the RBI as well as Eurozone CPI and unemployment and US factory orders; on Wednesday we have services PMIs across the Eurozone, China and (non-manufacturing) in the US along with the Fed Beige Book. Economic releases on Thursday include Germany factory orders, US trade balance and rate decisions out of the Eurozone and India; and on Friday we have the all-important Non-Farm Payrolls out of the US along with trade balances from Australia and Germany in addition to German industrial production figures.