Stock markets weakened on Thursday following an escalation in US-China tensions and signs that the health of the global economy was still fragile.
Wall Street closed lower after President Donald Trump claimed China was behind a disinformation and propaganda attack on the US and Europe. The S&P 500 was down 0.8 per cent and the technology dominated Nasdaq was lower by 1.0 per cent.
US jobless data revealed that more than 2.4m people applied for unemployment benefits last week, bringing the total number of first-time applications to 38.6m since the imposition of coronavirus lockdowns in March. The latest figures also showed that US home sales dropped by the most in 10 years, while manufacturing and services purchasing managers’ indices indicated sharp contractions.
European stocks erased earlier gains and followed Wall Street lower, with London’s FTSE 100 ending down 0.9 per cent and Frankfurt’s Xetra Dax slipping 1.4 per cent.
British five-year gilt yields fell below zero for the first time as investors sought safety in bond markets, in spite of a growing expectation of more interest rate cuts. Oil prices climbed to their highest intraday levels in two months while a stronger dollar meant gold drifted back from a seven-year high.
Widely-watched surveys showed that business activity in the UK and eurozone has begun to tick higher in May, although indicators for the region remained deeply depressed.
The eurozone’s partial rebound “suggests that the economy is now on a slow road to recovery”, said Jessica Hinds, an economist at consultancy Capital Economics.
Rising tension between Washington and Beijing was also on investors’ radars on Thursday. The National People’s Congress, China’s annual gathering of lawmakers, begins on Friday and will be watched for signs of new stimulus, and a response to Mr Trump’s accusations.
Several strategists and economists expect strains between the world’s two largest economies to increase further ahead of November’s presidential election in the US.
“Tensions between China and the United States continue to ratchet up . . . following a slow path of escalation, as [has been] widely expected given the elections,” said Sebastien Galy, strategist at Nordea Asset Management. “It is in neither party’s interest to boil it over, especially in the United States given the feedback loop in the equity markets.”
Global equity markets have rallied since late March on a combination of central bank support, hopes for a Covid-19 vaccine and a strong rebound in business activity where governments have eased lockdowns.
David Solomon, chief executive of Goldman Sachs, on Thursday said government and central bank interventions had “helped significantly in calming markets”, but cautioned that “very difficult decisions” lie ahead.
“We’ve got to find the right balance as we move forward between protecting people and keeping people healthy — being compassionate, but also being pragmatic about the fact that we need economic activity to also keep people healthy,” he said in an interview with IHS Markit’s CERAWeek series.
Momentum has stalled in May, though, despite some sharp daily swings, with economists keeping a close eye on the easing of lockdowns for signs of a new wave of infections.
Shares in Asia weakened on Thursday. Japan’s benchmark Topix fell 0.2 per cent while China’s CSI 300 of Shanghai and Shenzhen-listed stocks shed 0.5 per cent and Hong Kong’s Hang Seng index dropped by the same margin.
An early reading on exports from South Korea again highlighted the destruction to global demand that the pandemic has caused and the difficulties in restarting business activity. Shipments from Asia’s fourth-largest economy for the first 20 days of May shrank more than 20 per cent year-on-year and imports fell almost 17 per cent, official data showed on Thursday.
Japanese trade data for April were also weak, with a near 22 per cent contraction in exports, marking the worst month since 2009.
By contrast, oil prices extended Wednesday’s rally, which came after an Energy Information Administration report showed that US crude inventories had fallen for a second straight week. Brent crude, the international benchmark, rose 1 per cent to $36.10 a barrel. West Texas Intermediate, the US marker, rose 0.5 per cent to $33.98 a barrel.