Equities drop as Trump lines up China response

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Global stock markets

Equities fell in early trade Friday after Donald Trump called a news conference for later in the day to outline his response to China’s plan to crack down on Hong Kong, which many fear could further increase tensions between the superpowers.

The losses were being tempered, however, by hopes that parts of the planet are slowly emerging from the coronavirus crisis as governments continue to ease up on lockdown restrictions that have battered the global economy.

The retreat tracked a negative day on Wall Street, which suffered a late sell-off after Trump said he would make a statement on Beijing’s controversial security plan for the southern financial hub.

The US president told reporters at an Oval Office meeting that he was “not happy” with Beijing and the news conference would be about “what we’re doing with respect to China”, while giving no specifics.

The White House has already revoked the city’s special status, potentially opening the way for it to be stripped of key trading privileges such as lower tariffs than mainland China.

Relations between Washington and Beijing have deteriorated since the outbreak of the virus, which has killed more than 100,000 Americans, with Trump laying the blame at China’s door.

The row has fanned fears of a renewal of their trade war, which slammed the world economy and sent markets tumbling last year.

“All focus today will be on pre-positioning ahead of US President Trump’s announcing new policies related to China in response to China’s decision to move ahead with national security legislation for Hong Kong,” said Stephen Innes at AxiCorp. He said traders were eyeing losses of around seven percent for US markets, the amount they fell during last year’s standoff.

But he pointed out that there was a cycle last year when stocks would dive on bad headlines before bouncing to record highs.            

“Once stocks were looking good, Trump would have the confidence to drop another headline bomb via new tariffs. Arguably with the S&P 500 above 3,000 they might look good again in the president’s eye.”

In the morning trade, Hong Kong was down 0.3 percent, Shanghai dropped 0.1 percent and Tokyo went into the break 0.3 percent lower. Sydney fell more than one percent, Seoul eased 0.4 percent, while Singapore, Wellington and Taipei slipped 0.2 percent each.

However, Manila and Jakarta edged up. The losses, though, were shallower than the beginning of the day, with support coming from hopes that the world is gradually returning to a semblance of normal as death and infection rates of coronavirus ease. Bars, cafes, shops, and beaches from Asia to the US are beginning to reopen, while Italy and England have set June dates for a resumption of their football seasons. There was also some cheer from the news that fewer people applied for US unemployment benefits for the first time last week, while the insured unemployment rate, measuring the people actually receiving benefits, also dipped for the first time since the pandemic struck. Still, some observers remain nervous.

“I’m very cautious about my medium- and even long-term outlook for the markets,” Kate Jaquet at Seafarer Capital Partners told Bloomberg TV. “I perceive there to be a very large disconnect between the stock market valuations across the globe and underlying company fundamentals.”

 

 

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