Geopolitical tensions dented global stocks on Friday as investors braced for potential retaliation from Washington after Beijing approved a sweeping national security law for Hong Kong.
The S&P 500 slipped 0.3 per cent in the opening minutes of trading on Wall Street, while the tech-heavy Nasdaq Composite gained 0.1 per cent. London’s FTSE 100 led European markets lower with a 1.3 per cent decline, while in Frankfurt the Xetra Dax fell 0.9 per cent.
Investor optimism over the loosening of lockdowns is at risk of being overshadowed by tensions between the world’s two biggest economies.
US President Donald Trump is scheduled to hold a news conference regarding China on Friday, after Beijing pushed ahead with legislation that has raised concerns about Hong Kong’s future as a financial centre. Critics warned that the new law would curtail political freedoms in the city.
Mr Trump tweeted “China!” on Friday morning, but gave no indication of what he planned to announce.
“The agenda is unclear but given the recent mood . . . it is likely to be confrontational,” Deutsche Bank strategist Jim Reid said.
Hong Kong’s Hang Seng closed down 0.7 per cent as most markets in Asia-Pacific fell. The index has dropped more than 6 per cent in May, even as other major global bourses have rallied sharply.
The territory has emerged as a flashpoint between the two superpowers, with China threatening “countermeasures” against the US on Friday. When asked about possible actions, a spokesman for the ministry of foreign affairs referred to the US’s large trade surplus with Hong Kong.
“The important US financial institutions all have a presence in Hong Kong. The US has important interests in Hong Kong,” he said.
Overnight, Wall Street’s S&P 500 reversed gains of 1 per cent to close down 0.2 per cent, snapping a three-day winning streak.
The onshore exchange rate for the renminbi, which investors have been watching as US-China friction intensifies, was little changed at Rmb7.14 per dollar. That was after the People’s Bank of China set the currency’s trading band stronger than analysts had expected.
“Recent [renminbi] fixings by the PBoC suggest an effort to dampen volatility — not drive the currency lower,” said Larry Brainard, chief emerging markets economist at TS Lombard. He added that the currency was set for “periodic bursts of volatility . . . but not of continuing steady depreciation”.
Oil prices dropped, but were off their worst levels of the day. Brent crude, the international benchmark, was down 2 per cent to $34.60 a barrel. US marker West Texas Intermediate fell 2 per cent to $33.01.
Government bonds rallied. The yield on the US 10-year Treasury slipped 0.033 percentage points to 0.672 per cent as investors moved into the debt.
Additional reporting by Yuan Yang in Beijing