• European bourses are predominantly closed given Labour Day, while the FTSE 100 is down over 2% with US futures posting similar losses
• US President Trump said the China trade deal is now secondary to what China did regarding the virus and that he has seen evidence the virus had originated from Wuhan Institute of Virology in China
• Additionally, Trump suggested he can retaliate against China with tariffs
• Apple beat EPS and Revenue but device breakdown missed expectations while Amazon missed EPS but beat revenue expect entire profit to be spent on COVID related expenses; lower by 2.5% and 5.0% respectively
• Looking ahead, highlights include US manufacturing PMI, US construction spending, ISM manufacturing, Baker Hughes. Note, today is Labour Day across Europe.

CORONAVIRUS UPDATE

Australian PM Morrison said the National Cabinet agreed to bring forward consideration of easing social distancing restrictions to May 8th, awhile he also commented there are now about 1.5mln people on jobseeker allowance and that unemployment could surpass 10%. (Newswires)

Tokyo report 165 new COVID-19 cases, according to media. (Newswires)

German coronavirus cases rise to 160,758 (+1,639) deaths stand at 6,481 (+193), according to the Robert Koch Institute. (Newswires)

China’s Hubei province is to reduce the emergency coronavirus response level as of May 2nd; down one from the highest response level. (Newswires)

Spain's coronavirus deaths rise by 299 to 24,842 (Prev. 24,543), according to the Health Ministry. (Newswires)

ASIA

The tone in Asia was subdued owing to the mass closures in the region for Labor Day and following the negative handover from Wall St due to month-end rebalancing and with futures pressured after hours following mega-cap earnings from Amazon and Apple. Amazon shares declined around 5% in extended trade after mixed results in which the Co. missed on EPS but topped revenue forecasts and noted it expects to spend its entire USD 4bln of operating profit on COVID-related expenses, while Apple initially gained after it beat on top and bottom lines, boosted its share buyback by USD 50bln and raised its dividend, although the gains were only brief as the results were clouded by weaker than expected iPhone and iPad sales and after the tech giant refrained from providing a Q3 outlook. ASX 200 (-5.1%) was the laggard with downside led by heavy losses in the commodity related sectors and a slump in the top-weighted financials with selling exacerbated by profit taking after the index had rallied to its highest level in 6 weeks and notched its best month on record for April. Nikkei 225 (-2.8%) also suffered firm losses amid a slew of earnings and after Tokyo Core CPI data turned negative to trigger fears of a return to deflation, while reports also noted that PM Abe is to formally decide to extend the state of emergency due to coronavirus on Monday. As a reminder, markets in mainland China and Hong Kong were shut alongside most of the regional bourses, although China’s tensions with US remained in the spotlight after comments from US President who suggested he has seen evidence the virus had originated from the Wuhan Institute of Virology and that he can do tariffs to respond to China, with sources also later noting the US is considering blocking government retirement savings funds from investing in Chinese equities deemed a national security risk. Finally, 10yr JGBs were weaker amid spillover selling from T-notes which had reversed intraday gains and briefly fell below 139.00 amid heavy supply including Boeing’s USD 25bln 7-tranche offering, while JGB prices were also hampered by weaker demand at the enhanced liquidity auction for 2yr, 5yr, 10yr & 20yr JGBs.

US President Trump said the China trade deal is now secondary to what China did regarding the virus and that he has seen evidence the virus had originated from Wuhan Institute of Virology in China, while he stated that he cannot say why he has a high degree the virus originated there but suggested he can do tariffs to respond to China. Furthermore, reports later noted that President Trump is exploring blocking government retirement savings fund Thrift Savings Plan, from investing in Chinese equities deemed a national security risk. (Newswires)

BoJ minutes from March meeting stated that Japan's economic activity had been weak recently due mainly to the impact of the outbreak of COVID-19 and was likely to remain so for the time being mainly affected by the outbreak of the disease. Members concurred that the outlook for prices was likely to be somewhat weak for the time being, partly due to the effects of the decline in crude oil prices, while several board members said consumer and household sentiment could sour rapidly if markets remain unstable. Furthermore, members concurred that financial conditions in Japan were accommodative on the whole but had become less so and a few members said it was uncertain whether the economy can make a strong rebound once virus was contained. (Newswires)

Tokyo CPI (Apr) Y/Y 0.2% vs. Exp. 0.2% (Prev. 0.4%). (Newswires) Tokyo CPI Ex. Fresh Food (Apr) Y/Y -0.1% vs. Exp. 0.1% (Prev. 0.4%) Tokyo CPI Ex. Fresh Food & Energy (Apr) Y/Y 0.2% vs. Exp. 0.5% (Prev. 0.7%)

US

Fed widened access to its Paycheck Protection Program Facility to include all SBA-approved lenders including non-depository institutions, while it added that eligible borrowers will be able to pledge entire PPP loans that they purchased as collateral to the PPPLF. (Newswires)

US President Trump said we have to protect the dollar, while he also commented that we are going to look at aid for states mentioned by House Speaker Pelosi although we want to get something for it. (Newswires)

UK/EU

ECB says Eurozone GDP may fail to return to 2019 levels until 2022 and confirms it forecasts a sharp contraction in GDP this year before a 6% increase in 2021 in a mild scenario. (Newswires)

ECB's Lane says the Governing Council will further adjust policy adjustments if needed, which would include increasing the size of the PEPP and adjusting the composition as much as necessary and for as long as required. (Newswires)

UK Treasury has held discussions with business groups regarding redesigning the furlough scheme to reportedly allow employees to return to work on a part-time basis initially. (FT)

Bank of Italy said Italian banks are likely to face losses on unlikely to pay loans totalling EUR 65bln at end of 2019, while it sees a risk of a sharp increase in loan deterioration and stated that the pandemic has significantly increased financial stability risks for Italy. (Newswires)

GEOPOLITICS

North Korean Leader Kim's younger sister Kim Yo-Jung is the most likely to succeed him if he dies or becomes incapacitated, according to South Korean press citing a US congressional report. (Yonhap)

EQUITIES

Europe sees tumbleweeds amid mass closures in observance of Labor Day Holiday, as the UK’s FTSE 100 (-2.1%) remains the sole trading major index ahead of its market holiday next Friday. Sentiment remains on the backfoot, Nasdaq and Dow futures relinquished the 8800 and 24000 levels respectively before extending losses, as markets price in an escalation in US-Sino tensions after US President Trump threatened tariffs, whilst negatively perceived earnings from Apple (-3% pre-mkt) and Amazon (-4.5% pre-mkt) add further pressure to US equity futures. Apple beat on top and bottom line, but iPhone, iPad, and Mac sales fell short of forecasts. Amazon missed on EPS but topped revenue forecasts, albeit subscription services disappointed and the group expects to spend the entire USD 4bln of operating profit on virus-related expenses. Back to London, FTSE 100 sees most of its stocks in the red, with heavyweight Shell (-6%) continuing to be weighed on by its dividend cut alongside a broker downgrade and the pullback in the energy complex, BP (-4%) moves lower in tandem. Large-cap miners also reside towards the foot of the UK index as base metals take a hit from sentiment amid the prospect of escalating trade tensions between the world’s two largest economies: with Rio Tinto -3.7%, Glencore -5.3%, BHP -4%. On the flip side, RBS (+3.4%) is among one of the few gainers post-earnings after topping earnings and operating profit forecasts and despite Q1 impairments rising almost ten-fold YY to GBP 802mln from GBP 88mln.

Apple (AAPL) - Q2 2020 (USD): EPS 2.55 (exp. 2.26); Revenue 58.3bln (exp. 54.54bln). Increases its share repurchase programme of up to 50bln and dividend increase to 0.82/shr. iPad: 4.37bln (exp. 4.56bln). iPhone: 28.69bln (exp. 30.89bln). Mac: 5.35bln (exp. 5.69bln). Services: 13.35bln (exp. 13.21bln). Other Products: 6.28bln (exp. 7.10bln). Co says its supply chain was "back up and running at full-throttle at the end of March". China "saw a nice improvement in March and a further improvement in April". Co says overall sales have seen a better second half of April than they did in the last part of March and beginning of April. 

Amazon (AMZN) - Q1 2020 (USD): EPS 5.01 (exp. 6.25/6.18 reported), revenue 75.5bln (exp. 73.61bln). Co expects to spend the entire 4bln of operating profit on COVID-related expenses. Online stores: 36.65bln (exp. 35.63bln). Physical stores: 4.64bln (exp. 3.67bln). Subscription services: 5.56bln (exp. 5.63bln). Third party seller services: 14.48bln (exp. 14.33bln). Operating Income: -1.5bln to +1.5bln. Revenue: 75bln-81bln (exp. 77.99bln) (Newswires). Co. shares fell almost 5% after market.

Gilead Sciences Inc (GILD) - Q1 20 (USD): Adj. EPS 1.68 (exp. 1.57), Revenue 5.5bln (exp. 5.45bln). Expects more than 140k treatment courses of Remdesivir will be manufactured by May-end. (Newswires) Co. shares fell 2.6% after-market.

Visa Inc (V) - Q1 20 (USD): EPS 1.38 (exp. 1.35), Revenue +7% at 5.98bln (exp. 5.75bln). Co does not provide FY view. Expects its 4.9bln acquisition of Plaid to close by year-end. (Newswires) Co. shares fell 0.75% after-market.

FX

USD - Little respite for the Dollar in holiday-thinned volumes at the start of the new month due to Labour Day, but the DXY is clinging to or at least staying within sight of 99.000 by virtue of even more weakness in rival currencies amidst broad risk-off sentiment following US President Trump’s latest accusatory comments regarding COVID-19 and threat of reprisals against China, including more trade tariffs.

GBP - Not the biggest G10 mover by a long chalk, but volatile given that the UK is one of the only European centres open on May 1st. Moreover, some payback after hefty month end gains has ensued, with Cable backing off further from 1.2600+ highs after failing to sustain momentum to test mid-April peaks and a key technical level in the form of the 200 DMA (1.2648 and 1.2654 respectively). Meanwhile, the Pound is also unwinding more upside vs the Euro as the cross rebounds further from sub-0.8700 levels towards 0.8750 and back above the 200 DMA yet again (now around 0.8722) on the usual RHS for fixing dynamic. For the record, an even weaker than prelim manufacturing PMI, collapse in consumer credit and miss in mortgage approvals were all largely brushed aside, along with significantly stronger than forecast Nationwide house prices.

AUD/NZD/CAD/NOK/SEK - The major laggards, and in the case of the Aussie and Kiwi also the notable underperformers as overall aversion is compounded by a bearish research note from Westpac overnight. In short, the bank based its bleak outlook for the Antipodeans on prospects of ‘brutal’ earnings and data in coming weeks, and on that note AIG manufacturing PMI plunged deep below 50, while ANZ consumer confidence dropped to sub-100. Aud/Usd has duly retreated from 0.6500+ to under 0.6450 and Nzd/Usd has lost grip of the 0.6100 handle with Aud/Nzd pivoting 1.0600. Elsewhere, the Loonie has detached further from its close crude correlation, albeit with oil prices recoiling this is also keeping Usd/Cad afloat near 1.4050 vs 1.3850 at one stage on Thursday, pending the possible appointment of a new BoC Governor later today and Canada’s manufacturing PMI. Similarly, the Scandinavian Crowns have been scuppered by the downturn in crude and risk appetite, with Eur/Nok and Eur/Sek both nudging the tops of ranges near 11.3300 and 10.7500 respectively.

JPY/CHF/EUR - All benefiting from the aforementioned ongoing Buck weakness, as the Yen bounces from circa 107.40, Franc eyes 0.9600 and Euro grinds closer to 1.1000 having breached the 55 DMA (1.0949) and yesterday’s best (1.0972) to expose resistance at 1.0991 before the 200 DMA (1.1035).

EM - The ramp up in US vs China vitriol over the coronavirus has obviously taken its toll on the Yuan, as Usd/Cnh extends beyond 7.1300, but the contagion is spreading through the region like the global pandemic itself with Usd/Try up around 7.0400, Usd/Rub back over 75.0000 to name and highlight just a few.

FIXED

Gilts got a bit more impetus and brave in wake of broadly weak domestic releases at 9.30BST to fractionally extend intraday highs to 137.86, but stopped just 2 ticks short of Thursday’s Liffe session peak before drifting all the way back down and just posting a fresh base at 137.60 vs the 137.70 prior settlement level. Hence, consolidation rather than clear conviction one way or the other has panned out in the absence of other European, and especially core Eurozone equivalents to provide outside impetus or guidance via distraction. Moreover, US Treasuries have hardly stepped in to fill the void, with trade extremely subdued and volumes light due to Labour Day, awaiting the final Markit PMI, manufacturing ISM and construction spending to a lesser degree.

COMMODITIES

WTI and Brent futures gave up earlier mild gains as the positive sentiment seen earlier in the week peters out, whilst a lion’s share of market closures in Asia and Europe keep volumes subdued. Today marks the official inauguration of the OPEC+ output curtailment pact, albeit markets have already priced in the event. “The output cuts while significant may not be enough to fully offset demand destruction in the global market in the short term and the inventory build-up could continue for the rest of 2Q20, though at a slower pace”, ING reaffirms. That being said, reports noted that Iraq could face difficulties in adhering to its obligations under the deal. WTI June trades on either side of USD 19/bbl for a large part of the session before dipping below the psychological USD 18.50/bbl (high USD 20.50/bbl), whilst Brent July also resides closer to the bottom of its current USD 27.67-29.67/bbl intraday band.  Spot gold remains on the backfoot sub USD 1700/oz, with some attributing a correction amid a lack of fresh buyers. Copper continues its deterioration throughout the session on the risk-averse tone and absence of regional participants including its largest buyer China – prices eye the 24th Apr low at USD 2.30/lb.

US President Trump said the US has no plans to take equity stakes in energy companies and does not plan to nationalize oil firms, according to an Energy Department spokesperson. (Newswires)

Iraq could reportedly face difficulties to cut up to 1mln BPD in line with OPEC+ deal and said it is still in talks with international oil companies for a deal to cut output in line with the agreement, according to sources. (Newswires)

Kazakhstan Energy Ministry said the country will reduce output at giant, large and medium-sized oil fields. (Newswires)