5 Things You Need to Know to Start Your Day: Americas

Good morning. Some of the world’s hottest trades are faltering, and Airbus falls sharply after issuing a profit warning. Here’s what’s movin [View in browser]( [Bloomberg]( Good morning. Some of the world’s hottest trades are faltering, and Airbus falls sharply after issuing a profit warning. Here’s what’s moving markets. — [David Goodman]( Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Nvidia falters Monday’s tech-led declines on Wall Street reverberated through global markets, [pushing down European shares](. The losses were led by Nvidia’s three-day, $430 billion selloff, that has seen it The stock has fall 13% since briefly overtaking Microsoft last week as the world’s most valuable company. The [rapid decline]( has investors turning to technical analysis for clues on where the bottom may be. Hot trades cool Movements in Nvidia -- and Bitcoin — are reminding investors that the market’s[hottest trades are far from one-way bets](. The largest digital asset posted one of its steepest drops on Monday since the onset of the crypto-market recovery at the start of last year, leaving investors pining for $60,000 as a technical floor for the token to avert more pain. “People are working out now that momentum works both ways,” said Chris Weston, head of research for Pepperstone Group. Airbus slumps In Europe, Airbus caught the headlines,[tumbling more than 10%]( after issuing a profit warning amid persistent supply-chain concerns. The firm is coming up short on the millions of parts that make up commercial aircraft, and the situation is getting worse rather than better for the world’s largest planemaker. Its suppliers also fell on Tuesday, while Boeing, which has similar supply-chain problems, may be in focus in US hours. Fed latest Federal Reserve Bank of San Francisco President Mary Daly yesterday [warned the US labor market is nearing an inflection point,]( where further slowing could mean higher unemployment. Read Joe’s analysis of that below. We’ll hear more from Fed officials today, when Michelle Bowman and Lisa Cook are due to make remarks. Meanwhile, the US Treasury kicks off this week’s trio of bond sales later in the day with two-year notes, whose appeal is set to be boosted by incoming inflation numbers. Euro crisis redux? With the first round of the French election looming this week, Allianz Global Investors’ multi-asset chief investment officer is warning officials they must [reassure foreign investors]( that the nation’s finances are in order or risk a fresh blowout in bond spreads. With polls showing Marine Le Pen’s far-right National Rally [widening its lead](, some fear the current political turmoil could trigger a European debt crisis to rival the one seen over a decade ago, Gregor Hirt said. What we’ve been reading This is what’s caught our eye over the past 24 hours. - [Forget 160,]( traders see yen slumping as far as 170 this time. - UK’s housing crisis needs a [London-sized city to fix it.]( - [Eurofins rejects Muddy Waters]( attack as shares edge back up. - Javier Blas says the oil market has [worrying echoes of the Libor scandal.]( - Nike is betting on [$1,000 Air Jordan high-tops]( to win over China. And finally, here's what Joe’s interested in this morning [Yesterday in here]( I wrote about the risk of a Fed policy mistake, or the possibility that the labor market starts to unravel before the FOMC gets around to cutting rates. So I'll continue on that theme today, [because a new speech from San Francisco Fed President Mary Daly]( (also out yesterday) basically talks about the exact same thing. As she puts it, "This is not 2021, or 2022, or even 2023." Inflation has come down significantly, though it's still above the Fed's goal. But also, there are clear signs of slowing labor market momentum. The risks have become more two sided. There were a number of interesting lines in her speech. First on inflation she notes: "The bumpiness of inflation data so far this year has not inspired confidence. Recent readings are more encouraging, but it is hard to know if we are truly on track to sustainable price stability." This is an important line. It's clear that the warm numbers from Q1 clearly shook the Fed and have made it more cautious about assuming a nice, easy path back to 2%. Perhaps you could say the bar has been raised regarding what constitutes clear evidence that the goal is in sight. But on the other hand, there is reason to be nervous about the state of the labor market in a way that wasn't so clear at the start of the year. Daly points to the Beveridge Curve -- showing the relationship between job vacancies and the unemployment rate -- as suggesting that a further decline in vacancies from here could mean chunky increases in unemployment. Here's Daly: "Going forward, this tradeoff may not be as favorable. The latest job market data, the large red dot (April 2024), shows that we are getting very near the flatter portion of the Beveridge curve. This means that future labor market slowing could translate into higher unemployment, as firms need to adjust not just vacancies but actual jobs." This almost perfectly echoes the concern [from Goldman's Jan Hatzius from last week](, that so far the upward pressure on the unemployment rate has come from people outside of the labor force having a harder time finding work, but that soon this could mean people in the labor force getting laid off to a larger degree. At least from her perspective (and Powell has basically said the same) the Fed does not want to see labor weakness start to snowball. She believes the Fed does not need to apply the Volcker unemployment rate medicine to finish the job on inflation. From Daly: I know this from my own experience. I grew up in Ballwin, Missouri in the 1970s, the last period of high inflation. In my world, many people struggled. Inflation imposed a corrosive tax, eroding earnings, making it hard to pay bills or invest in anything other than the day to day. Worst of all, there was no end in sight. The Volcker disinflation remedied that. But the medicine was harsh. And my family, and millions of other American families, went from being constrained by high inflation to hampered by job loss. Looking back, that medicine seemed necessary, reflecting the specific circumstances of the time. But we are not in that world. The Federal Reserve has credibility that it didn’t back then. People know the Fed will bring inflation down. Of course it's one thing to identify that the dynamics are tricky right now. And of course it's nice to know that the Fed doesn't want to break the labor market. But what remains to be seen is whether the Fed can gain the confidence it needs on the inflation data before a cycle of rolling layoffs takes hold. And again, because Q1 inflation was unexpectedly hot, establishing that confidence at the Fed may be more difficult than it otherwise would have been. Read the whole [Daly speech here](. Joe Weisenthal is the co-host of Bloomberg’s Odd Lots podcast. 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