| China-U.S. relationship worsens, Germany plunges into recession, and ugly retail sales number expected. Not talking Yesterday President Donald Trump said that he doesn't want to talk to Chinese President Xi Jinping right now, adding that the U.S would "save $500 billion" if he "cut off the whole relationship" with the Asian nation. The rapid descent into a new standoff between the world's two largest economies may be difficult to reverse and it seems to be in nobody's interest to halt it. Both Trump and presumptive Democratic nominee Joe Biden are blaming China for the spread of the virus, while Beijing is unleashing nationalist forces as the country faces its worst downturn in generations. German slump Speaking of downturns, data from Germany this morning confirmed the country fell into a recession with growth dropping 2.2% in the first quarter, the largest decline since 2009. While the figure is not as bad as much of the rest of the euro area, the country is on track for a 6.5% decline this year despite fiscal stimulus. The common currency zone also reported the first decline in total employment since 2013 in the quarter. Retail no-sales March's steepest drop in retail sales since 1992 is going to be beaten this morning when April data is published at 8:30 a.m. Eastern Time. Economists expect a 12% plunge in the headline number. Worryingly, the National Retail Federation says the road to recovery for American stores will be a bumpy one of "fits and starts." This problem can already been seen in some of the countries far ahead of the U.S. on their reopening timeline, with a rising number of cases leading to fears of a second wave of outbreaks. Markets rise A mixed week for equity investors is trying to end on a positive note with gauges around the world heading higher. Overnight the MSCI Asia Pacific Index climbed 0.3% while Japan's Topix index closed with a 0.5% gain. In Europe the Stoxx 600 Index had posted a 1.2% recovery by 5:50 a.m., driven by miners and car makers. S&P 500 futures pointed to a positive open, the 10-year Treasury yield was at 0.615% and oil was near a six-week high. Coming up... Empire Manufacturing data for May accompanies retail sales at 8:30 a.m. U.S. April industrial and manufacturing production at 9:15 a.m. are expected to show significant declines. March job openings numbers and the latest University of Michigan sentiment reading is at 10:00 a.m. The Federal Reserve publishes its 2020 Financial Stability Report at 4:00 p.m., with TIC flows for March also at that time. The House will vote on a $3 trillion stimulus package that has no chance of ever getting signed into law. Hedge funds make their 13F filings. What we've been reading This is what's caught our eye over the weekend. And finally, here's what Yakob's interested in this morning The Fed may have started buying bond ETFs this week, but people are still debating how well these products held up during the rout. One view is that fixed-income ETFs not only survived but emerged as heroes. The argument goes that, since the underlying bonds weren't trading much, ETFs became the best tool for price discovery. In other words, ETF prices were "right." But right about what? Yao Zeng of the University of Washington tackles this question in a new interview. Zeng, who's written extensively about bond ETFs, acknowledges the products provided more up-to-date prices than bonds in the turmoil. But just because NAVs were "wrong,'" it doesn't follow that ETF prices were right, says Zeng. Traders buying and selling ETFs during March's mayhem were likely acting out of panic or herding instinct, he says. And because authorized participants spooked by illiquidity in the underlying markets backed away from their vital arbitrage role, the action in the ETFs wasn't passed down to the bonds themselves. "Without AP arbitrage, we can never be sure whether buying ETFs truly means tracking the underlying bonds or anything at all," he says. The Fed may have doused the fire by entering the market, but the debate won't go away any time soon.  Follow Bloomberg's Yakob Peterseil on Twitter at @YPeterseil. Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. | 
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