Asian shares slid and futures retreated in the U.S. and Europe as China announced plans to impose a national security law on Hong Kong, which threatened to further escalate tensions between Washington and Beijing. Treasuries climbed with the dollar.
Hong Kong’s Hang Seng plunged about 5%, with losses were more modest in Tokyo and Sydney. The yuan dipped as China’s National People’s Congress began with pledges to sell bonds and omit a GDP target for this year due to uncertainties stemming from the pandemic. Gold pushed higher. Indian bonds rallied after the country’s central bank cut its policy rate in an unscheduled move.
The S&P 500 closed lower on Thursday, with signs mounting that President Donald Trump will make his tough-on-China stance a key element of his re-election bid. China responded to accusations from Trump, warning that it will safeguard its sovereignty, security and interests, and threatened countermeasures.
Fresh turmoil in Hong Kong comes as the relationship between the world’s two biggest economies appears to be souring. That’s threatening to take some steam out of the rally in risk assets that’s left global equities up about 30% from the March lows amid more signs economies are reopening after pandemic-induced shutdowns.
“The geopolitical risks are meaningful,” David Riley, chief investment strategist at BlueBay Asset Management LLP said on Bloomberg TV. “It’s a concern for the market, is a potential source of weakness and a correction.”
Meanwhile, the Bank of Japan kept its main policy rate while saying it will start a new lending program next month.
Elsewhere, crude oil fell about 6% in New York. The Australian dollar dipped as Fitch Ratings Ltd. cut the country’s AAA credit rating outlook to negative.
These are some of the main moves in markets:
- S&P 500 futures fell 0.6% as of 7:06 a.m. in London. The S&P 500 fell 0.8% on Thursday.
- Japan’s Topix index lost 0.9%.
- Hong Kong’s Hang Seng dropped 4.9%.
- South Korea‘s Kospi fell 1.7%.
- Australia’s S&P/ASX 200 Index lost 0.9%.
- Euro Stoxx 50 futures were 1% lower.
- The yen rose 0.2% to 107.44 per dollar.
- The offshore yuan dropped 0.1% to 7.1388 per dollar.
- The euro bought $1.0929, down 0.2%.
- The yield on 10-year Treasuries slipped three basis points to 0.64%.
- Australia’s 10-year yield fell four basis points to 0.88%.
- West Texas Intermediate crude was at $31.92 a barrel, down 5.9%.
- Gold added 0.3% to $1,731.42 an ounce.
— With assistance by Jeanny Yu, Matt Turner, and Joanna Ossinger
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