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Global stocks dented by pandemic fears and US-China tension

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Via Financial Times

The rally in global markets faltered on Wednesday, under pressure from rising US-China tension and concerns over the timeline for reopening economies during the coronavirus pandemic.

London’s FTSE 100 slipped 1 per cent in morning trading, as stocks across Europe lost ground. The Stoxx 600 index, which offers a snapshot of the region’s largest companies, was down 1.1 per cent.

On Wall Street, futures tied to the S&P 500 recovered earlier losses to trade 0.6 per cent higher, after the large-cap index snapped a six-day run of gains to close 2.1 per cent lower on Tuesday.

Global equities have rallied through some of the worst economic data in recorded history, as investors welcomed central bank support and focused on the gradual reopening of economies from pandemic-imposed lockdowns.

But the rebound is sensitive to signals that economies might not be able to quickly reopen, and concerns have also been growing over a potential second wave of infections in countries including China and South Korea.

The declines on Wall Street came after Dr Anthony Fauci, one of the most senior members of President Donald Trump’s coronavirus task force, warned that ending lockdowns too early could result in “suffering and death” and delay the eventual economic recovery.

“Equity and fixed income markets may have begun healing from their March panic, but they continue to face headwinds,” said Fidelity International’s chief investment officer Andrew McCaffery.

Markets are “looking through” the current economic disruption, but “much depends on how long it takes to end lockdowns, lift restrictions and restore confidence”, he said.

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Investor sentiment has also been dented by the re-emergence of trade tensions between Washington and Beijing. On Tuesday, Mr Trump ordered the main federal government pension fund not to invest in Chinese companies, citing the risk of “future sanctions” over Beijing’s handling of the coronavirus pandemic. The fund manages almost $600bn on behalf of federal employees in the US and the White House said investment in Chinese companies would “expose the retirement funds to significant and unnecessary risk”.

“I think action will have a negative impact at the margin in terms dampening some flows into Chinese assets, and some other markets may follow,” said Colin Harte, portfolio manager at BNP Paribas Asset Management.

Editor’s note

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Markets in Asia recovered earlier losses towards the end of the trading day. China’s CSI 300 index of Shanghai and Shenzhen-listed stocks gained 0.2 per cent, while Japan’s Topix shed 0.1 per cent and Hong Kong’s Hang Seng index fell 0.3 per cent.

One bright spot in the region was India’s Sensex index, which climbed 2 per cent after Narendra Modi, the country’s prime minister, on Tuesday announced a $266bn stimulus package to help the country’s economy recover from its coronavirus-induced lockdown.

The yield on US government debt fell as investors moved into safer assets. The benchmark 10-year Treasury yield fell 0.03 percentage points to 0.662 per cent.

Sterling was little moved by official data showing the UK economy shrank at the fastest monthly pace on record in March, and was up 0.3 per cent against the US dollar at $1.2295.

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The recent rally in oil prices also fizzled out on Wednesday. US crude benchmark West Texas Intermediate was down 0.9 per cent at $25.54 a barrel. A day earlier WTI gained almost 7 per cent after the American Petroleum Institute reported that inventories at the key storage facility of Cushing, Oklahoma, had fallen by more than 2m barrels.

Brent crude, the international benchmark, fell 1 per cent to $29.65 a barrel.

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