Mixed global growth picture, mixed earnings, and 150 million Covid cases.
Mixed picture
Yesterday's U.S. growth data confirmed that the recovery is gaining steam. For the rest of the world, the picture remains decidedly more mixed. Purchasing managers' index numbers for China pointed to a moderation of growth, while the unfolding crisis in India has forced many states and cities into lockdown. GDP data from Europe this morning showed the euro-area economy slipped into a double-dip recession in the first quarter. Inflation in the common-currency zone was at 1.6% in April, the quickest pace in two years, with energy prices the biggest contributor to the rise.
Earnings
Amazon.com Inc. reported a first quarter 44% jump in revenue to $108.5 billion, while forecasting sales of up to $116 billion in the three months to June. Shares were 2% higher in premarket trading. Twitter Inc., on the other hand, is getting clobbered in early trading, dropping 12% after reporting disappointing ad revenue and guidance. Exxon Mobil Corp. and Chevron Corp. reporting before the bell are the only earnings of note today.
150 Million
Global Covid-19 cases topped 150 million as the pandemic's toll continues to be high, but not evenly distributed. Deaths in Brazil passed 400,000 and India's medical system is overwhelmed by the surge in cases. The European Union reached agreement for another 1.8 billion Covid vaccine doses through 2023 from Pfizer Inc. and BioNTech SE. In the U.S., New York is set to " fully reopen" by July 1 as vaccination programs proceed on target.
Markets slip
The last trading day of the month has so far been one that has seen stock gauges slip as investors reassess the growth outlook. Overnight, the MSCI Asia Pacific Index slid 0.9% while Japan's Topix index closed 0.6% lower. In Europe, the Stoxx 600 Index was broadly unchanged at 5:50 a.m. Eastern Time with miners the biggest fallers in the region. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 1.649%, oil was close to $64 a barrel and gold was down.
Coming up...
Personal income data is expected to have surged more than 20% in March after stimulus checks hit bank accounts. Spending is expected to have risen 4.1%, with the data published at 8:30 a.m. February GDP for Canada is also at that time. University of Michigan Consumer Sentiment is at 10:00 a.m. The latest Baker Hughes rig count is at 1:00 p.m. This weekend sees the annual Berkshire Hathaway Inc. shareholder meeting, which will be an online-only event for the second year.
What we've been reading
Here's what caught our eye over the last 24 hours.
And finally, here’s what Katie's interested in this morning
There are multiple ways to skin a cat, and at least two ways for the world’s most powerful central bank to paint itself into a corner when it comes to normalizing policy.
The Federal Reserve’s April meeting went according to script: Rates unchanged, asset purchases steady, and while the economy and labor market have “strengthened,” policy makers won’t be pulling back support any time soon. Chairman Jerome Powell had plenty of opportunities to make that clear in the presser, where right off the bat he was asked if it’s time to start talking about tapering. The answer: No.
Naturally, the Fed’s monster bond buying, combined with its new outcome-based approach to inflation, has been the subject of endless debate. That conversation has intensified as U.S. economic data skyrocket (helped in a big way by basic math) and life, at least in the U.S., starts to resemble normal again. Against that backdrop, the Fed’s crisis-level asset purchases may look extreme. As Bloomberg’s own Michael McKee asked in this week’s presser, what do we get for $120 billion a month that we couldn’t get for less?
Which brings us to Corner One. Mohamed El-Erian, president of the University of Cambridge’s Queens’ College and a Bloomberg Opinion columnist, has emerged as a passionate critic. He argued in a column this week that the Fed should begin tapering -- but won’t -- and inaction risks fueling inflation and financial instability. El-Erian reiterated that view in a Clubhouse conversation with myself and Bloomberg Opinion’s Brian Chappatta this week, saying that the longer the Fed waits to begin scaling back, the harder the policy makers may have to “slam the brakes” later.
But there’s also the argument, from Corner Two, that the Fed never gets a chance to hit the brakes. That’s the view of PGIM Fixed Income’s Michael Collins -- U.S. growth is peaking now, and inflation won’t run hot enough for long enough for the Fed to hike away from zero.
“Their clock on inflation is going to start ticking next year,” Collins said in a Bloomberg Television interview. “As inflation starts to roll over in years two, three or four, and growth peaks here and maybe starts to revert back to 2% or sub-2% growth in two or three years from now, there’s a really good chance that the Fed waits so long to hike rates that they’re unable to.”
That risk is amplified by the fact that the Fed will start tapering first and “let that play out for a year or so” before touching rates, Collins said.
Of course, the Fed isn’t buying $120 billion worth of assets every month on a whim. Millions of Americans remain out of work, and a still-dire coronavirus situation outside the U.S. threatens global growth. But even Powell himself acknowledged that markets look “a bit frothy,” thanks in part to the Fed’s policies.
Follow Bloomberg's Katie Greifeld on Twitter at @kgreifeld
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