U.S. Stocks Waver as China Tensions Threaten to Flare
June 01 2020 - 10:50AM
Dow Jones News
By Anna Isaac and Xie Yu
U.S. stocks swung between small gains and losses Monday on
concerns that escalating tensions between Washington and Beijing
will hurt trade between the world's two largest economies.
The Dow Jones Industrial Average ticked up 16 points, or 0.1%,
in morning trading. The S&P 500 was up 0.1%, while the Nasdaq
Composite gained 0.4%.
Investors said sentiment was tempered after Bloomberg News
reported Monday that China has ordered companies to temporarily
halt imports of some U.S. farm goods including soybeans. Such a
move could add to the friction between the two countries and sour
the prospects for existing and new trade agreements. A trade war
roiled markets for much of 2019 and ended only after both sides
agreed to a phase-one deal and pledged to continue negotiations to
address other hot-button issues.
Tensions between the two nations have climbed again in recent
weeks with U.S. officials expressing anger over how China handled
the coronavirus outbreak. President Trump on Friday opted to
downgrade relations with Hong Kong, saying China's decision to
impose a national security law was "absolutely smothering Hong Kong
freedoms" and made it impossible for the U.S. to continue treating
the city with a special status.
"If it is true China will buy less soybeans, it will increase
the chances of escalation with the U.S.," said Seema Shah, chief
strategist at Principal Global Investors. Such a move would suggest
that "China is predicting the upcoming U.S. election means that
President Trump's bark will be worse than his bite."
Investors largely seemed to discount the clashes between police
and civilians in the U.S. as the worst civil unrest in decades
erupted in American cities this weekend.
"Markets are assuming it won't last. We've seen this all before,
going back to the civil protests in the 1960s," said Ian
Shepherdson, chief economist at Pantheon Macroeconomics. "If cities
go on to be closed down due to curfews and so on, then that would
be disastrous for companies trying to reopen. Too soon to
tell."
Drug maker Pfizer fell 7.4%, weighing on the Dow. The drug-maker
said late Friday that it would stop a study of a potential breast
cancer treatment.
In bond markets, the yield on the 10-year U.S. Treasury ticked
up to 0.680%, from 0.650% Friday.
Overseas, the pan-continental Stoxx Europe 600 climbed 0.8%.
Among the best performers in the index was Associated British
Foods, owner of clothing retailer Primark. Its shares rose 9% after
it said it would be opening stores in coming weeks in response to
loosening government lockdowns.
In Asia, Hong Kong's benchmark stock index led the region's
markets higher, signaling investors' relief that Mr. Trump had
refrained from definitive steps targeting the city or mainland
China. The city's Hang Seng Index surged 3.4%.
Mr. Trump said Friday that the decision to stop treating Hong
Kong as semi-autonomous from Beijing would affect issues such as
extradition arrangements, trade in certain high-technology
products, and advice to U.S. travelers, but he stopped short of
announcing specific actions.
His statement on Hong Kong wasn't perceived as overly negative,
likely because it didn't contain concrete measures on the phase-one
trade deal or on Hong Kong sanctions, said Martin Hennecke, Asia
investment director with St. James's Place Wealth Management.
Hong Kong is to some extent benefiting from U.S.-China tensions,
which has helped create strong demand for secondary listings from
Chinese companies that are already listed in the U.S., Mr. Hennecke
said.
Markets are boosted by relief that the U.S. hasn't taken tougher
measures, which could potentially have devastated the Hong Kong
economy and had wider regional effects, according to Alex Au,
managing director at Alphalex Capital Management, a hedge fund
based in Hong Kong.
"The short-term overhang is removed," Mr. Au said.
Write to Anna Isaac at anna.isaac@wsj.com and Xie Yu at
Yu.Xie@wsj.com
(END) Dow Jones Newswires
June 01, 2020 10:35 ET (14:35 GMT)
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