Most markets slipped Friday, at the end of a tough week for global markets that have been wracked by worries over a second wave of infections, rising China-US tensions and uncertainty about how long any economic recovery will take.
The downbeat mood was compounded by another spike in US jobless claims and overshadowed news several countries were easing strict lockdown measures that have kept billions of people holed up at home, strangling the world economy. Still, oil prices remain buoyant with the dark days of April, when WTI tanked below zero, a bad memory as demand picks up with people returning to the roads and producers pushing ahead with massive output cuts. Signs of a slowdown in infections and deaths around the world have allowed governments to lift some restrictions that have been in place for weeks, but with that comes the risk of renewed contagions.
Donald Trump’s top virus expert this week warned about the danger of reopening too early, which he said could derail any economic recovery — a view the president disagreed with. The tycoon, who is running for a second term in November, also continued his spat with China — which he has singled out for its role in the pandemic — saying he did not want to engage with President Xi Jinping — potentially imperilling their trade deal.
“I’m very disappointed in China. I will tell you that right now,” he said in an interview with Fox Business. “There are many things we could do. We could do things. We could cut off the whole relationship.” Trump has already hit out at China for the “plague” and threatened fresh tariffs on the country, sparking fears of a renewal of their painful trade war that hammered markets last year.
‘Cautiously constructive’
On top of that, the head of the Federal Reserve this week warned of a “highly uncertain” outlook for the world’s top economy. Data Thursday showed nearly three million more people applied for unemployment benefits last week, pushing the total since shutdowns began in mid-March to 36.5 million.
The week “was dotted with recovery potholes due to a resurgence of COVID-19, grim warnings from the Fed chief, and a revival of the US-China feud, and along with it lingering memories of all the worst-case scenarios associated with the protracted trade spat. Indeed the terrible trifecta,” said AxiCorp’s Stephen Innes.
Data showing Chinese retail sales contracted in April — indicating crucial consumer activity remains weak — added to the negative mood as dealers brushed off the first growth in industrial production this year. Hong Kong dropped 0.5 percent, extending its losing streak to a fourth day, while Tokyo ended the morning 0.3 percent lower and Shanghai dipped 0.2 percent.
Seoul, Wellington, Taipei, Jakarta and Manila were also lower, though Sydney eked out gains. However, crude was on course for the third week of gains on optimism for demand as people slowly emerge from lockdowns and output is slashed.
“Market sentiment has turned cautiously constructive since the end of April and I expect it to remain as such unless there are major setbacks in terms of infection rates,” Vandana Hari, of Vanda Insights, said. However, she added that expectations over demand will stay “fragile with a nervous eye on how economies fare in reopening”.
