Squawk Box Europe Express

Industrial improvement… Chinese output rises for the first time this year but retail sales and fixed asset investment continues to decline. Tensions between the U.S. and China escalate as President Trump warns he could completely cut ties with China, saying he has no reason to talk to President Xi Jinping right now. CNBC learns the President is set to sign an executive order to require key medicines to be manufactured in the U.S to reduce reliance on foreign supply chains. French pharmaceutical giant Sanofi is in hot water with the Élysée Palace after CEO Paul Hudson suggested that the U.S. could be first in line to receive its potential Covid-19 vaccine. And in telco news, BT has refused to comment on whether it will offload its OpenReach stake to fund the launch of its super-fast fibre.  

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Warnings on Wall Street… U.S. Federal Reserve Chairman Jerome Powell warns of prolonged economic damage, sending global stock markets into the red. Meanwhile, Cleveland Fed President Loretta Mester tells CNBC that the outlook for 2020 looks ‘dire’, adding that any recovery is likely to be slow, but shoots down expectations the central bank will lower rates into negative territory. President Trump says he disagrees on that point but calls Powell his “most improved player”, praising him for his recent actions to mitigate the fallout from the outbreak. Billionaire investor David Tepper issues a stark warning, telling this channel that the market is the second-most overvalued ever, sending the Dow to a session low. In autos news, FCA and Peugeot suspend their dividends for this year but jointly state that their merger is on track. We also speak to Zurich Insurance CFO George Quinn who says the company is bracing for up to $750m of virus-related claims this year.  

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Wall Street suffers steep losses with the Dow Jones falling more than 400 points and the Nasdaq breaking a six-day rally. This comes on the back of Dr Anthony Fauci’s Coronavirus Senate hearing where the White House’s top virus adviser warned against reopening the U.S. economy too soon. The pandemic also weighs on Commerzbank. The German lender swings to a loss in the first quarter and warns that it is difficult to give concrete guidance. CNBC has learned that ride-hailing app Uber has made an offer for food delivery service Grubhub but the price has yet to be decided. And the UK awaits first-quarter GDP data, which is expected to show that the British economy has severely contracted, as retail sales fall by more than 19 per cent for April.

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China’s industrial deflation worsens as producer prices fall 3 per cent in April. It’s the largest slump in four years. New reports of Coronavirus clusters in Seoul and China weigh on Asian markets but on Wall Street the Nasdaq bucks the trend, posting a sixth consecutive day of gains for the first time since December. German steel giant ThyssenKrupp sees it net loss widen to nearly €1bn in the second quarter, as all parts of the business, from the elevator unit to the car parts division, see earnings decline. In further autos news, Toyota says it will post an 80 per cent drop in full-year operating profit in the wake of the pandemic – the car giant’s poorest result in almost a decade. Tesla founder Elon Musk is defying Californian lockdown orders by reopening his flagship Alameda County plant. He has dared authorities to arrest him over the move. As the UK economy begins to reopen, with manufacturing and construction sector workers being urged to return, opposition parties slam Prime Minister Boris Johnson over confusing public messages.  

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From ‘Stay at Home’ to ‘Stay Alert’ - Prime Minister Boris Johnson lays out a conditional plan to lead parts of the UK population back to work but he refuses to lift the lockdown just yet. On the continent, France and Spain ease restrictions from today with just over half of Spaniards allowed to resume their normal lives as part of the first phase of the country’s exit. This comes after the country logs its lowest death toll in two months. Markets in Asia follow Wall Street into the green, buoyed by economic restarts around the world and shrugging off concerns over April’s U.S. unemployment figures. The PBOC promises to further bolster the Chinese economy, also helping sentiment. In Brussels, the EU threatens to sue the German government over its constitutional court ruling which challenges the ECB’s asset purchase programme.

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Asian stocks rise on signs that relations between Washington and Beijing are warming after trade representatives from both countries agreed to stronger cooperation in implementing the first phase of the trade deal. U.S. non-farm payroll is expected to show that more than 20m jobs were lost last month. Siemens says it will hit the bottom in Q3 and see full-year revenue decline, after posting an 18 per cent drop in Q2 industrial profit. Uber sees shares spike in extended trade on news that bookings are up from April’s lows. CEO Dara Khosrowshahi assures the market that the ride-hailing app will be profitable in a matter of quarters.

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A surprise recovery…Chinese exports unexpectedly rise in April with a sharp uptick in overseas shipments since December. However, lower domestic demand provides softer-than-expected import numbers. AB Inbev withdraws its full-year guidance after beer volumes fall nearly 10 per cent in Q1. The brewing giant says it has reopened all of its sites in China. Air France-KLM forecasts significantly negative operating earnings this year as its net loss widens to €1.8bn in the first quarter. Credit Suisse says it can’t predict the extent to which the Coronavirus outbreak will impact its financial goals, striking a more pessimistic note than its earnings release a few weeks ago. Meanwhile, Telefonica and Liberty Global reach a deal to create a new UK mobile and broadband behemoth, while Telefonica reports net profit halved in the first quarter.

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Media giant Disney cancels its 2020 dividend payout after suffering a $1.4bn hit to income due to the Covid-19 outbreak. It has announced plans to reopen its Shanghai theme park from next week. BMW lowers its margin outlook, saying that the negative impact of the virus is lasting longer than expected with second-quarter data being worse than the first. Unicredit suffers a bigger loss than anticipated as it sees trading income fall and is forced to take a large writedown on loans. In Germany, state heads agree a draft reopening plan that would see all shops and restaurants resume trading but with provisions for fresh lockdowns if cases rise.

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Crunch time for the ECB…Germany’s constitutional court is set to rule on whether the ECB’s sovereign bond-buying programme is appropriate in a decision that could hinder its QE measures. BNP Paribas' first-quarter profit falls by 33 per cent as market turmoil weighs on its trading unit. CFO Lars Machenil tells CNBC the economic outlook is difficult. WeWork founder Adam Neumann is suing Softbank for abandoning a $3bn tender offer that was part of the office-sharing firm’s rescue package.

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Chinese oil and airline stocks have dragged the Hang Seng down and U.S.-China tensions weighed on sentiment. U.S. officials reportedly believe China covered up the Coronavirus outbreak to hoard medical supplies. President Trump has blamed Beijing and warned that U.S. deaths could top 100,000.  Billionaire investor Warren Buffett has sold off all airline positions and warns of gloomy times ahead for the aviation sector. The FDA has granted Roche approval to carry out anti-body testing. The Swiss drug maker has vowed to double its production over the coming months.

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