Equities were mixed Wednesday as profit-taking and worries about deteriorating China-US relations were weighed against optimism over the gradual reopening of economies around the world.
Hong Kong extended losses as police fired pepper-ball rounds as anti-China protesters took to the city’s streets, with investors fearing the demonstrations could erupt into the worst unrest since last summer.
The broad trend across global markets has been upward for weeks as virus deaths and infections ease in most countries and governments begin to reopen their battered economies, fanning hopes for a recovery in the second half of the year.
Confidence has also come from mind-boggling amounts of stimulus and central bank pledges of support, with the latest coming from the eurozone, where European Commission President Ursula von der Leyen is due to unveil a trillion-euro revival plan for the bloc.
However, there was little fresh desire for risk assets with eyes on the simmering row between the world’s top two economies, fuelled by Donald Trump’s barracking of China over its role in the pandemic, and made worse this week by Beijing looking to tighten its grip on Hong Kong.
The financial hub was thrown back into the spotlight Friday when Chinese officials proposed a controversial security law that many fear could ring the death knell for the city.
And Trump appeared to agree, with his press secretary Kayleigh McEnany telling a briefing he had said it is “hard to see how Hong Kong can remain a financial hub if China takes over”.
Washington has already said it could terminate its preferential trading status over the issue.
Markets are also fretting over reports that the US has warned it will impose sanctions on Chinese entities and officials if it goes ahead with the law.
While China and Hong Kong leader Carrie Lam have sought to ease worries about the extent of the law plans, Jeffrey Halley at OANDA warned that no matter how they try to dress it up “the passage of the security legislation from Beijing will have consequences for the beleaguered (city) and will further darken relations between the US and China.”
Concerns about the growing crisis have weighed on the yuan, losing almost three percent this year, with observers suggesting it could hit a record low.
– Hong Kong protest worries –
Meanwhile, there are concerns about another flare-up in the city as lawmakers prepare to discuss a law that bans insulting China’s national anthem.
Seven months of sometimes violent demonstrations last year hammered the local economy and raised questions about its future.
Hong Kong fell 0.4 percent, Shanghai lost 0.3 percent and Sydney fell 0.1 percent, while Kuala Lumpur dropped more than one percent as Malaysia struggled to contain its virus. There were also losses in Jakarta, Bangkok and Singapore.
But Tokyo, Mumbai, Manila, Seoul, Taipei and Wellington saw gains.
In early trade, London, Paris and Frankfurt were all higher. The gains in Paris as dealers brushed off a warning from officials that France’s economy could contract 20 percent in the second quarter.
Still, National Australia Bank’s Tapas Strickland, said in a note: “Risk sentiment continues to surge as activity lifts following the gradual easing of containment restrictions around the world, while vaccine hopes remain high with 10 different vaccines currently at the human trial stage.”
He also cited comments from Federal Reserve official James Bullard that the third quarter “very likely, right behind the worst quarter, will be the best quarter of all time on the growth perspective”.
Wall Street, where the New York Stock Exchange trading floor reopened after two months of closure, finished higher, with the Dow gaining 2.2 percent.
Oil markets slipped on China-US tensions, and after reports said Russia could begin easing up on its supply cuts in July.
Massive reductions by Moscow and other major producers including Saudi Arabia have helped fuel a surge in prices over the past month, with WTI doubling since the end of April.
But analysts said the commodity will likely continue to win support from the easing of lockdowns, which is expected to boost demand as people get back on the road.
– Key figures at around 0810 GMT –
Tokyo – Nikkei 225: UP 0.7 at 21,419.23 (close)
Hong Kong – Hang Seng: DOWN 0.4 percent at 23,301.36 (close)
Shanghai – Composite: DOWN 0.3 percent at 2,836.80 (close)
London – FTSE 100: UP 0.7 percent at 6,112.97
Euro/dollar: DOWN at $1.0954 from $1.0984 at 2040 GMT Friday
Dollar/yen: UP at 107.51 yen from 107.54 yen
Pound/dollar: DOWN at $1.2292 from $1.2335
Euro/pound: DOWN at 89.11 pence from 89.04 pence
West Texas Intermediate: DOWN 2.3 percent at $33.55 per barrel
Brent North Sea crude: DOWN 2.2 percent at $35.37 per barrel
New York – Dow: UP 2.2 percent at 24,995.11 (close)