Global stocks tumble after US-China coronavirus row intensifies

Global stocks tumble after US-China coronavirus row intensifies

Global stock markets dropped sharply on Friday, as the spectre of a new flare-up in US-China relations added to concerns over the corporate and economic impact of the coronavirus crisis.

Shares on Wall Street opened lower, with the S&P 500 falling 1.9 per cent and the tech-weighted Nasdaq down 2.3 per cent following earnings results from Apple and Amazon overnight.

In London the FTSE 100 slid 1.8 per cent while most bourses on continental Europe were closed for a public holiday.

Donald Trump escalated his attacks against China at a White House coronavirus briefing on Thursday, saying he had seen strong evidence that Covid-19 originated from a scientific laboratory in Wuhan.

The US president also raised the prospect of using tariffs against Beijing, but denied a US media report that he was considering cancelling US debt held by China.

“The last thing the financial markets need now as they grapple with Covid-19 is a renewal of the trade war between the US and China,” said Derek Halpenny, head of European markets research at MUFG.

Friday’s dip could mark a turn in sentiment for investors, who have been emboldened of late by hopes of a potential treatment for Covid-19 and the ending of lockdowns in the US and Europe. US stocks in April registered the biggest monthly rally since 1987.

But the mood has darkened at the end of this week, following more weak US jobs data and red flags in the overnight earnings from Amazon and Apple, two important companies in a tech sector that has led the US market’s rebound.

Amazon warned that severe virus-related strain could leave operating income in the second quarter anywhere between a loss and gain of $1.5bn, sending shares down 4.7 per cent in early trading.

Amazon’s warning, alongside Apple’s decision to withhold guidance for the current quarter, has raised fresh concerns over the corporate impact of the global health crisis. Shares in Apple fell 1.5 per cent.

Data released this week has shown the US economy shrank by its fastest rate since the 2008 financial crisis, while the eurozone’s growth contracted at its quickest pace on record.

“We now have a foretaste of the impact of the virus and the resulting shutdown,” said Bank of America’s global economist Ethan Harris in a note to clients. 

China’s experience suggests “a similar or worse outcome” for the US and Europe in the second quarter, he added.

In foreign exchange markets, China’s renminbi weakened to its lowest level since early April against the US dollar as emerging market currencies sold off, while stocks in Asia fell.

The offshore-traded renminbi slipped 0.7 per cent to Rmb7.1269 per dollar, its sharpest move since March.

The Chinese currency “is about to get caught in a fresh US-China imbroglio”, wrote Alan Ruskin, an analyst at Deutsche Bank. “We have reached a particularly sensitive impasse as it relates to the virus narrative, and it is certainly not in China’s interests to encourage currency weakness,” he added. 

Line chart of Offshore-traded renminbi per US dollar showing China's currency falls as tensions rise

The S&P/ASX 200 benchmark in Australia, a country heavily exposed to trade with China, dropped 5 per cent, weighed down by miners. Japan’s Topix fell 2.2 per cent, while markets in mainland China, Hong Kong and South Korea were closed for public holidays.

The cautious sentiment rippled through other EM currencies, sending the South African rand 1.6 per cent lower and the Mexican peso down 1.2 per cent. The Turkish lira fell through the important TL7 level against the dollar as it weakened 0.7 per cent.

Japanese stocks were under pressure after purchasing managers’ index data for April signalled the sharpest drop in the country since 2009, as the pandemic triggered factory shutdowns and a collapse in demand.

There was a rare moment of relative stability in oil markets. The international benchmark Brent rose 1 per cent to $26.80 a barrel, while US marker West Texas Intermediate climbed 5.5 per cent to $20.00.

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