Global equities took a beating yesterday as China-US tensions intensified, while stalled stimulus talks in Washington fuelled fears for the economy, traders said.
In London, the FTSE 100 closed down 1.4% to 6,123.77 points; Frankfurt — DAX 30 ended down 2.0% to 12,838.06 points; Paris — CAC 40 closed down 1.5% to 4,956.43 points and EURO STOXX 50 closed down 1.8 % to 3,310.89 points yesterday.
Lingering worries about the impact on businesses of fresh coronavirus outbreaks helped trigger major profit-taking, overshadowing a batch of bright data in Europe.
“It’s a sour end to the trading week,” said AJ Bell investment director Russ Mould.
The Dow was down nearly 140 points approaching midday in New York, “adding to yesterday’s declines in morning action as friction between the US and China heated up overnight”, said Charles Schwab analysts.
European indices were up to 2% lower at the close.
Earlier in Asia, Shanghai and Hong Kong had already dived as relations between the world’s two superpowers took another bad turn when China ordered the closure of the US consulate in Chengdu in retaliation for America shuttering Beijing’s diplomatic mission in Houston this week.
The standoff is the latest in a string of issues — including Hong Kong, coronavirus and Huawei — that have plunged relations between the superpowers into crisis.
Stock markets were also still reeling from Thursday’s report of a rise in new jobless claims in the US which prompted doubts about any ongoing economic rebound there, traders reported.
Hopes that the data would spur US lawmakers to push on with fresh stimulus measures were undermined by the inability of Republicans and the White House to agree on a $1.0tn stimulus proposal.
Haven asset gold meanwhile jumped within spitting distance of $1,900 for the first time since late 2011, boosted by economic uncertainty, geopolitical tensions and Federal Reserve monetary easing that has weakened the dollar.
British businesses experienced the fastest upturn in five years during July and data for the United States will follow later in the day.
The market’s dogged optimism on economic recovery had been challenged on Thursday by data showing the number of Americans filing for unemployment benefits unexpectedly rose last week for the first time in nearly four months.
The euro was at $1.15880, close to its highest level since October 2018, having enjoyed a winning streak for all of July, as the European Union’s passing of a 750bn euro recovery fund restored confidence.
The yen was up 0.5% at 106.33, earlier touching its highest since June 23.
The Chinese yuan, a barometer of Sino-US tensions, looks set for its worst week since mid May.
It was down 0.2% at 7.0235 per dollar in the offshore market.
In fixed income, Italy’s bond market was poised for its best week in two months.
Although Italy’s 10-year bond yield rose 4 basis points to 1.09%, it was still holding near Thursday’s low around 1.04%. Safe-haven German bond yields also rose from two-month lows after the stronger-than-forecast eurozone PMI data.
The combination of super-loose money and negative real bond yields has burnished the attractiveness of gold, which pays no yield but is supply constrained.
The precious metal was last at $1,892.32 an ounce for its biggest weekly gain in four months as it held firm near a nine-year high.
That put it within striking distance of the all-time peak at $1,920.
Analysts at RBC Capital Markets noted gold-backed exchange traded product holdings had already reached record peaks.
“The level of Covid-19 uncertainty, low and negative real and nominal rates, politics and geopolitics have driven gold prices sharply higher, and pushed allocations among investors ever higher,” they said in a note.
Oil attempted to stage a rebound having tanked Thursday, but then investors lost heart, overwhelmed by demand worries, and pushed crude lower again.
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