Bloomberg
“U.S. Stocks Slump, Treasuries Rise on Trade, Jobs: Markets Wrap.”
U.S. stocks fell and Treasuries rose as investors assessed the latest threat to the global trade order and a disappointing jobs report.
The S&P 500 pared its weekly gain after President Donald Trump ordered his team to consider additional tariffs on Chinese imports, prompting an aggressive response from China that it would counter protectionism “to the end, and at any cost.” Equities briefly pared declines as White House officials attempted to tone down the rhetoric, suggesting any actions remained far off. Treasuries remained higher and the dollar retreated.
The tensions overshadowed the latest U.S. jobs report, which showed hiring cooled by more than forecast in March. The renewed saber rattling providing a bookend to a week that started with equities tumbling amid amplified rhetoric. That gave way to a three-day rally after White House officials signaled the president’s tough talk was part of a negotiating plan.
China said it hasn’t held any trade talks with the U.S. recently, dampening hopes the two will defuse the verbal spat. The offshore yuan slid as officials Gold and the Japanese yen rose.
After a volatile week, traders will also scrutinize a speech from Federal Reserve Chairman Jerome Powell at 1:30 p.m. on Friday for clues on how the trade tensions are affecting monetary policy. The slowdown in hiring follows strong growth in 2017.
Reuters
“Trump threatens tariffs on $100 billion more China goods; Beijing ready to strike back.”
China warned on Friday it was fully prepared to respond with a “fierce counter strike” of fresh trade measures if the United States follows through on President Donald Trump’s threat to slap tariffs on an additional $100 billion in Chinese goods.
China’s Commerce Ministry spokesman, Gao Feng, called the U.S. action “extremely mistaken” and unjustified, adding that the spat was a struggle between unilateralism and multilateralism. He also said no negotiations were likely in the current circumstances.
On Wednesday, China unveiled a list of 106 U.S. goods – from soybeans and whiskey to frozen beef and aircraft – targeted for tariffs, in a swift retaliatory move only hours after the Trump administration proposed duties on some 1,300 Chinese industrial, technology, transport and medical products.
Washington has called for the $50 billion in extra duties after it said a probe determined Chinese government policies are designed to transfer U.S. intellectual property to Chinese companies and allow them to seize leadership in key high-technology industries of the future.
China said it was not afraid of a trade war, even though it did not seek one, and accused the United States of provoking the conflict. Gao said comments from U.S. officials about ongoing talks about trade issues were incorrect.
While Beijing’s claims that Washington is the aggressor and is spurring global protectionism, China’s trading partners have complained for years that it abuses World Trade Organization rules and propagates unfair policies at home that lock foreign firms out of some sectors as domestic champions are being nurtured. China has repeatedly vowed that it would open up sectors such as financial services. President Xi Jinping next week is expected to unveil fresh measures on reform and his country’s opening up at the high-profile Boao Forum, China’s equivalent of Davos, in the southern island province of Hainan.
BBC News
“Brazil’s Lula ‘will not surrender to police in Curitiba.”
Brazil’s ex-President Luis Inácio Lula da Silva will not surrender to federal police at their southern HQ despite being ordered by a judge, reports say. Lula was expected to surrender by late afternoon after the Supreme Court ruled he should not stay free while appealing against his corruption conviction.
It is not clear whether he will give himself up in São Paulo instead. He says charges against him are politically motivated and designed to stop him from running from president. He had been favourite to win the October poll.
In his order, federal judge Sergio Moro said the 72-year-old must present himself before 17:00 local time (20:00 GMT) on Friday at the federal police headquarters in the southern city of Curitiba. He has been sentenced to 12 years in jail but the appeals process could take several more months or even years.
Several hundred Lula supporters have been rallying outside the metalworkers’ union near São Paulo, where he is staying. The Folha de São Paulo quoted Lula as saying in a brief phone conversation with the paper that he intended to remain at the metalworkers’ union throughout the day.
An unnamed source in his Workers’ Party told Reuters news agency he was waiting for a ruling on a last-minute appeal but it was not clear whether the ruling would come before the 17:00 deadline. The charges against him came from an anti-corruption investigation known as Operation Car Wash, which has implicated top politicians from several parties.
Bloomberg
“Corporate America Will Bring Next Wave of Pain, Money Managers Warn.”
Corporate America will beget the next wave of financial pain, or even recession, a growing choir of the world’s biggest money managers is warning.
After years of borrowing for stock buybacks and company buyouts at extremely cheap rates, the tide is turning as the Federal Reserve raises its target rate and pulls stimulus. That’ll pressure the swollen ranks of over-leveraged firms and weigh on growth, Guggenheim Partners Global Chief Investment Officer Scott Minerd said. Pacific Investment Management Co. and BlackRock Inc. are among investors curbing purchases or being pickier about what they buy.
Debt levels crept up as central banks suppressed borrowing benchmarks, with the proportion of global highly-leveraged companies — those with a debt-to-earnings ratio at five times or greater — hitting 37 percent in 2017 compared with 32 percent in 2007, according to S&P Global Ratings. When that burden collides with rising rates, it could cause a recession in the “late 2019 to mid 2020” window, Minerd wrote in an email.
Anticipating the pain, firms have scaled back on corporate credit. Brandywine Global Investment Management, with $74 billion in assets, reduced its exposure to less than 5 percent from as high as 50, according to Anujeet Sareen, portfolio manager with the Philadelphia-based unit of Legg Mason Inc.
TCW Group Inc. did likewise, curbing its exposure since 2016. It now limits recommended holdings to short-term debt in highly rated, low-leverage financial firms, such as U.S. banks, according to Jerry Cudzil, a portfolio manager at the fund company with about $200 billion.
U.S. investment grade bonds posted their worst first quarter since 1996, while speculative grade bonds posted their biggest loss for the same period since the financial crisis, according to index data. It’s a performance that left some feeling vindicated.
Pimco guides investors to be very selective about buying corporate debt and avoids “generic” investment-grade and high-yield securities, according to a March report by Joachim Fels and Andrew Balls. The housing sector, including a range of mortgage-backed securities, is the strongest area of credit while other bonds should be purchased selectively, with an emphasis on short-term debt, they said.