Stress everywhere: European stock markets slipped in early trading on Monday morning with a sharp downturn in Chinese economic activity in April weighing on risk sentiment. The move lower is modest so far with the FTSE 100 and DAX down by around half of one percent in early trade before stocks in London managed to move above the flatline.

China’s retail sales fell by more than 11 percent last month and industrial production declined by almost three percent. The data underscores the impact of lockdowns and the ongoing Covid outbreak in the country. Shanghai hopes to return to ‘normality’ by June. 

US stocks registered a sharp relief rally on Friday but still closed lower for the week. The Nasdaq Composite rallied more than 3.8 percent, its best daily gain since November 2020. Led by beaten-up tech and growth names, it’s got all the hallmarks of a bear market rally and the flow does not suggest all-out capitulation just yet.  The Nasdaq 100 bounced clean off the 50% retracement of Mar ’20 trough to all time high at 11,700.

Twitter stock fell 10 percent as Musk did a very Musk thing and said the transaction was on hold…something to do with bots. This is not just a bit brazen, it’s totally against the law. The fact he then tweeted “Still committed to acquisition” two hours later is hardly important, TWTR stock was on the move. Twitter’s legal team says he violated an NDA…the SEC should be more worried about whether this tweet broke the 2018 settlement that demands Musk have any communications that might affect Tesla shares checked by a Tesla lawyer; TSLA stock rallied almost 6% on the comment – the stock had fallen amid concerns Musk’s holding was collateralised for the Twitter deal and he would need to sell more to raise cash. The SEC is already looking into the murky disclosures of Musk’s initial ‘passive’ stake in Twitter, which was not only mislabelled but late. Quite whether this kind of behaviour is the sort of thing that a considerate CEO of a public company should be doing is kind of moot – Musk’s chequered history and maverick behaviour are well known and anyone trading this deal or trying to arb it should be very aware who they are dealing with. It could be a ploy to renegotiate at a lower price, it could just be that he’s running into obstacles. Or it could be that he’s never really wanted to see the transaction through. I don’t know…shares are down 2% in the pre-market today.

High conviction, high risk: Cathie Wood’s ARK Innovation ETF continued to load up on beaten-down tech stocks she thinks will be winners from major technological changes. And investors keep flocking to her…ARKK ended Friday up 11% in a sharp rebound that almost wiped out all the losses of the last week. 

Sentiment in crypto markets remains fragile with Bitcoin south of $30k…have already seen portfolio stress from crypto crash and can see more coming.  

BofA: “Crash in crypto/speculative tech now rivals internet bubble crash (Nasdaq -73% peak-to-trough) & GFC (banks -78%); trading pattern of post-bubble assets always furious bear rallies amidst dead sideways trading range for couple of years.” Sam Bankman-Fried, the found of FTX, says Bitcoin has no future as a payments network. ICYMI, he’s the guy who basically admitted that crypto yield farming is a Ponzi scheme. 

More stress in commodities with Indian banning wheat exports, which sent prices limit up +6% this morning to the highest in two months. After the late-Feb and earl-March volatility there has been some calm restored to global commodity markets over the last month or so, albeit prices have remained elevated. India’s export ban betrays the underlying stress that resides in the commodity space. 

What about the real economy? The University of Michigan’s headline Consumer Sentiment Index dropped more than expected to 59.1 from 65.2. Inflation expectations were steady at 5.4% for a year out and 3% for five years out…some compression in the belly of the yield curve indicates fears of the recession and demand destruction – one way to control inflation and about all the Fed can do right now: break the economy and hit demand until it comes down. 

Elsewhere, the euro was up a bit after bouncing off the 2017 lows around 1.0340, after France’s Villeroy said he expects a ‘decisive’ June meeting and ‘active’ summer. ECB is shaping up for a big pivot and this is more of the groundwork for that effort. A break here at the 2017 undoubtedly brings parity into focus. But a recovery above 1.0640 would be bullish. A brisk rally is coming for the euro for sure, it’s more a matter of how low do you go first.

Sterling also marking some progress after sinking last week to its weakest in two years. Governor Bailey faces scrutiny in Parliament this week – the BoE acted early but has been slow to follow up and the economic outlook for the UK remains bearish for the pound. UK inflation figures are also out this week so potentially an important few days for sterling.

I’ve been hoping that the max CB divergence thesis would spark a rally for the euro and pound but so far the dollar has been relentless. I would think that the ECB  will not only be watching rampant inflation but the exchange rate as a negative feedback loop, which will force a strong reaction this summer. Gold retains a bearish bias after breaking its 200-day SMA last week and has the $1,800 support in view now.