Global markets fall amid simmering US-China tension
Equities slip as traders worry about long-term effect of the new coronavirus, but oil rises to two-and-a-half month high
London — Equity markets slipped on Thursday on the concern about the long-term effect of the new coronavirus and simmering US-China tension, though the worry could not stop oil prices from marching to a two-and-a-half month high.
The London, Frankfurt and Paris bourses and Wall Street futures were all 0.7%-1% lower in early trading, while the euro and pound both wilted as the dollar snapped a four-day losing streak.
It was also a big day for data and central bankers. Purchasing managers index surveys (PMIs) from Germany and France had already confirmed that economic activity has begun to return, though they were far from stellar.
Despite better-than-expected eurozone-wide figures Germany’s improvement undershot analysts’ forecasts, and it was the third consecutive month that the surveys were firmly in economic contraction territory.
“While we have seen resilience in European markets there is still caution, and we can’t seem to get over the peaks [in equity markets] that we saw at the end of last month,” said CMC Markets senior analyst Michael Hewson.
“We have got PMIs improving but you would expect that because lockdowns are being eased. They are still rubbish, they are just less rubbish than they were in April.”
Italy and Spain’s government borrowing costs also rose slightly as bond market investors waited for bond sales from both and for more details on a proposed €500bn EU coronavirus recovery fund.
The Franco-German driven plan would push the bloc in the direction of joint financing but has been met with resistance from a number of other northern European countries who want the aid to be in the form of loans to be repaid rather than grants.
Oil on the boil
US weekly jobless claims are seen coming in later at a seasonally adjusted 2.4-million, according to a Reuters survey of economists — high but well off the record 6.867-million seen at the end of March.
There will also be a raft of US Federal Reserve speakers, including Fed chair Jerome Powell, and two big emerging market central banks — Turkey and SA — are expected to cut their interest rates again.
In Asia overnight, Japan’s Nikkei stock index slid 0.2% after data there showed the country’s exports collapsed 21.9% in April. Another dismal trade report came from Korea where 20-day exports declined by 20.3% year on year and imports fell by 16.9%, though Korean stocks still ended the day higher.
Shares in China had ended down 0.2% after more sparring with Washington over the coronavirus and Hong Kong and Taiwan emerged. Friday’s annual National People’s Congress (NPC) meeting was also looming after a two-and-a-half month delay due to Covid-19.
The focus will be on Premier Li Keqiang’s 2020 work report where he is expected to announce key economic targets and details on fiscal stimulus plans.
In the currency markets, the dollar climbed to $1.0956 to the euro and rose to $1.2291 against the British pound. The greenback also gained against the Australian and New Zealand dollars, reflecting the cautious mood of the markets.
No such issues in the oil world though, where US crude rose 1.9% to $34.09 a barrel and Brent jumped 1.8% to $36.39 a barrel. Both are now at the highest since early March on hopes that demand for fuel will see a robust global pick up.
US crude inventories fell by 5-million barrels last week, against the expectation in a Reuters poll for a 1.2-million-barrel rise, Energy Information Administration (EIA) data had showed.