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Financial markets have enjoyed a massive rebound in recent weeks as investors peg their hopes to a coronavirus vaccine, government and central bank stimulus and an economic recovery in the second half of this year. But trade tensions — particularly between the United States and China — have resurfaced as a major risk.
What’s happening: The Dow and the S&P 500 logged their best performances in six weeks on Monday after a coronavirus vaccine developed by Moderna showed positive early results.
But investors are increasingly concerned about the tenuous trade truce between Washington and Beijing as the world’s two largest economies exchange criticism over handling of the pandemic.
“Equities may be turning already to refocus on trade tensions,” Societe Generale strategist Kit Juckes said in a note to clients Tuesday.
There have been fresh signs that the US-China relationship is deteriorating just in the past few days.
The United States is pushing for a new crackdown on telecom equipment and phone maker Huawei, moving to further restrict its ability to work with US companies on Friday. The Global Times, one of the most combative and outspoken state media outlets in China, hinted that Beijing could soon retaliate by unveiling a long-rumored blacklist of foreign companies.
And the announcement Monday that Kevin Mayer, the executive who led Disney’s streaming efforts, is leaving the company to become the CEO of TikTok sparked a fresh round of calls for much tougher regulatory scrutiny of the Chinese-owned app.
“[TikTok] previously told me they couldn’t attend hearings and testify because executives were located in #China,” Republican Sen. Josh Hawley tweeted. “But this new executive lives in the USA. I look forward to hearing from him. Under oath.”
These developments only add to anxiety that President Donald Trump, who has claimed without providing evidence that the virus originated in a laboratory in Wuhan, could hit China with more tariffs as punishment for the pandemic.
Such a development would be seriously problematic for a global economy already facing its deepest slump since the Great Depression.
From my CNN Business colleague Laura He: “The pandemic has left the global economy in a much more precarious position than it was when the two countries began sparring over trade two years ago. And neither can afford the damage another full-blown trade war would inflict.”
Watch this space: The coronavirus isn’t stopping China from launching its own tariffs on key trading partners. Beijing has imposed an 80.5% tariff on Australian barley exports following an anti-dumping investigation. Australia’s trade minister said Tuesday that it isn’t interested in a trade war.
This dynamic adds to uncertainty as countries try to keep the spread of the coronavirus under control and get their economies back on track. Not everyone is confident that volatility in markets is behind us, even without taking trade into account.
“Given the substantial S&P 500 advance over the past two months, we would anticipate more limited upside going forward and we would expect a bumpier road in the months ahead,” Citi strategist Tobias Levkovich told clients this week.
Walmart’s online sales spike
Walmart’s sales at stores open at least a year soared 10% last quarter as demand for food and other items spiked.
The latest: Online sales were particularly robust, jumping 74% between January and March, the company said Tuesday. Shares rose 4% in premarket trading.
The current quarter could be tougher. US retail sales plummeted by 16.4% in April compared to the prior month, the largest decline since this data series began in 1992.
But Cowen analyst Oliver Chen notes that Walmart and Target have both invested heavily in curbside pickup and home delivery — a bet that is paying off now, despite higher costs tied to Covid-19.
“We see [Walmart] emerging from the Covid-19 crisis as one of the biggest winners in the grocery category as early investments in grocery pickup and delivery capabilities positioned it well to handle the surge in demand,” Chen said in a recent note to clients.
Watch this space: One big question is whether these gains will help create jobs across the United States.
Walmart (WMT), the largest private employer in the country, has hired 200,000 new workers since March 19 to deal with the spike in demand. However, Chen warned that the current environment could accelerate Walmart (WMT)’s investments in automated grocery packing, since “manual picking and packing is inefficient.”
On the radar: Kohl’s (KSS) and Home Depot (HD) also report earnings on Tuesday.
Corporate leaders worry about a prolonged recession
A prolonged recession is the biggest worry for executives as they contemplate the fallout from the coronavirus pandemic. But there’s plenty more keeping them awake at night, my CNN Business colleague Hanna Ziady reports.
Corporate leaders whose job it is to identify risks are also concerned about a related surge in bankruptcies, high levels of youth unemployment and increased cyber attacks due to the shift to remote working, according to a report published Tuesday by the World Economic Forum.
The authors surveyed nearly 350 senior risk professionals from large companies around the world. Two-thirds of respondents, contacted during the first two weeks of April, listed a protracted global recession as the “most worrisome” concern.
The bigger picture: Such fears are feeding calls for even more government stimulus on top of the historic spending commitments already delivered.
“Decisions taken now will determine how these risks or opportunities play out,” Peter Giger, chief risk officer at Zurich Insurance Group, which participated in the report, said in a statement.
Federal Reserve Chair Jerome Powell testifies before the US Senate’s banking committee at 10 a.m. ET.
Coming tomorrow: Target (TGT) follows Walmart with its earnings for the January-to-March quarter.