Stock markets slid yesterday after US lawmakers passed a bill supporting civil rights in embattled Hong Kong, possibly jeopardising delicate Chinese-American trade talks.
Investors, already nervous about the slow progress of the talks, became even more cautious after both houses of Congress overwhelmingly approved the bill and sent it to be signed by US President Donald Trump.
“A third day in the red for equity markets as the US-China trade deal, or lack of, continues to dictate market sentiment,” said Craig Erlam, senior market analyst at Oanda trading group.
Key European markets closed in the red, and on Wall Street the Dow Jones index was also lower in the late New York morning.
London’s FTSE 100 closed 0.3% down at 7,238.55 points, Frankfurt’s DAX 30 ended 0.2% lower at 13,137.70 points and Paris’ CAC 40 dropped 0.2% at 5,881.21 points, while the EURO STOXX 50 lost 0.1% at 3,679.66 points yesterday.
Benchmark German bond yields also ended a three-day streak of declines to nudge higher.
German 10-year bond yields, considered a eurozone benchmark, rose nearly 2 basis points to -0.3340%. The benchmark 10-year US Treasury note fell 8/32 in price to push yields higher to 1.7637%.
China yesterday accused the United States of seeking to “destroy” Hong Kong and threatened retaliation after Congress passed legislation supporting the pro-democracy movement that has thrown the city into nearly six months of turmoil.
Foreign Minister Wang Yi said passage of the Hong Kong Human Rights and Democracy Act “indulges violent criminals” that China blames for the worsening unrest and aims to “muddle or even destroy Hong Kong”.
“Recent moves in stock markets seem to be almost solely driven by the latest developments in US-Sino talks,” said XTB chief market analyst David Cheetham.
“It’s quite remarkable that stock markets in not only New York and Shanghai, but also London and Frankfurt, have such a heightened level of sensitivity in the near term to any news on this front.”
Among individual share moves, investors cheered the market debut of stock in France’s state-owned lottery monopoly, with eager buyers pushing the stock up sharply.
On the macro front, the OECD grouping of the world’s wealthiest nations yesterday trimmed its outlook for the global economy, saying the world was headed for its weakest economic growth since the 2007-2008 financial crisis.
Urging governments to invest in digital and climate transformation, the Organisation for Economic Co-operation and Development said activity had been hobbled by weaker trade and investment in the past two years, as Trump and Chinese leaders continue to be locked in a trade conflict.
Oil prices rose as investors expected next month’s Opec summit to agree on an extension of current production cuts.
Yields on US Treasury debt rose, snapping three sessions of declines, bolstered by China saying it was willing to work with the United States to resolve core trade concerns, rekindling some hopes for a bilateral deal.
Also lifting sentiment was a Wall Street Journal report that said China had invited top US trade negotiators for a new round of face-to-face talks in Beijing.
“This just shows that the trade deal is not dead and that we will get some sort of an extended truce, which is a positive,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“What we’re going through now is a market beginning to realise the daily rhetoric of the trade news — one day positive, one day negative — is beginning to wear off,” he said, adding he would not be surprised to see stocks end the day higher.
The dollar edged lower against other major currencies.
The dollar index fell 0.01%, with the euro down 0.03% to $1.1069.
The Japanese yen strengthened 0.03% versus the greenback at 108.59 per dollar.
Brent crude rose $1.10 to $63.50 a barrel, while West Texas Intermediate (WTI) crude gained 92 cents to $57.93.
Both benchmarks had fallen earlier in the session.
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