U.S. Stock Futures Signal Pause in Week's Sharp Rally
May 28 2020 - 6:05AM
Dow Jones News
By Joe Wallace and Frances Yoon
The sharp rally in U.S. stocks this week appeared set to pause
Thursday, with futures drifting as tensions with China mounted and
investors awaited weekly jobless claims data.
Futures tied to the S&P 500 flitted between gains and
losses, suggesting the benchmark will open roughly flat. Contracts
linked to the Dow Jones Industrial Average edged up 0.6%. The
blue-chips gauge closed above 25000 for the first time since early
March on Wednesday, and posted its largest two-day advance in over
a month.
The House passed a bill late Wednesday that would sanction
Chinese officials involved in the suppression of Muslim minority
groups, adding to the exchange of barbs between Beijing and
Washington in recent days. The move came just hours after the State
Department determined that Hong Kong no longer has a high degree of
autonomy from China, opening the way for President Trump to take a
range of steps including revoking special arrangements on
trade.
China on Thursday hardened its stance, forging ahead with a
resolution to impose national-security laws on Hong Kong in a bid
to crush anti-Beijing protests. Growing strains between the U.S.
and China over the world-wide Covid-19 pandemic, technology and a
widening rivalry for global influence have renewed concerns among
investors about a revival in the trade war that rocked markets last
year.
"It's just another potential concern on top of Covid," said
Brian O'Reilly, head of market strategy at Italian asset manager
Mediolanum. "Whether we actually get into trade war 2.0 -- I think
even in a second term for Trump, they'd be reticent to go down that
path."
Hong Kong's Hang Seng Index fell 0.7% by the close of trading.
The resolution passed by China's legislature would allow senior
lawmakers in Beijing to write legislation to prevent and punish
acts of separatism, subversion, terrorism and foreign interference
in Hong Kong. The laws would then be promulgated by the city's
leader. The resolution would also allow mainland Chinese
state-security agencies to operate officially in Hong Kong,
according to the draft.
"Investors are worried about whether that means there could be
new trade barriers introduced," said Chang Wei Liang, a strategist
at DBS Bank. "This will be lingering on investors' minds until we
get clarity on what the U.S. intends to do with Hong Kong."
International markets climbed. The Stoxx Europe 600 rose 1.2%,
led by gains in travel-and-leisure stocks. Japan's Nikkei 225
jumped 2.3% by the close of trading.
In the U.S., investors will get another look at how the American
labor market is coping with a historic shock when weekly data on
jobless claims are released at 8:30 a.m. ET. Economists at Deutsche
Bank forecast that 2.1 million people filed for unemployment
benefits in the week through May 23, down from 2.438 million the
week before. That would still be more than three times greater than
the pre-coronavirus record high.
Stocks are likely to pull back at some point given the degree of
uncertainty surrounding the global economy as lockdown measures are
relaxed, said Michael Drummey, head of U.S. equity risk trading at
Mizuho Americas LLC. "The market is acting in a way that doesn't
really line up with that uncertainty," he said. "We have a FOMO
rally -- a fear of missing out."
A key question for investors is whether economically sensitive
stocks can extend their recent rally, said Hugh Gimber, a
strategist at J.P. Morgan Asset Management. "It's been the most
beaten-up sectors that have really caught the bounce," he said,
pointing to gains for shares in U.S. banks and travel
companies.
Shares in technology companies have paused in recent days,
having powered much of the recovery in U.S. stocks since March.
They could come under further pressure in response to a draft
executive order that Mr. Trump is expected to sign Thursday, Mr.
Gimber said. The order would seek to limit the broad legal
protection that federal law currently provides social-media and
other online platforms, according to people familiar with the
draft.
China's yuan weakened to as low as 7.1872 to the U.S. dollar in
offshore markets, putting it close to its weakest levels since
offshore trading was allowed in 2010. Later in the day, the
currency regained ground, rallying to 7.1715 per dollar.
Tensions between Washington and Beijing have pushed the yuan
lower, said Paul Sandhu, head of multiasset quantitative solutions
for Asia-Pacific at BNP Paribas Asset Management. Another factor
building pressure on the currency: Chinese investors are pursuing
returns in overseas markets.
Write to Joe Wallace at Joe.Wallace@wsj.com and Frances Yoon at
frances.yoon@wsj.com
(END) Dow Jones Newswires
May 28, 2020 05:50 ET (09:50 GMT)
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