Hong Kong Leads Global Markets Higher -- Update
01 June 2020 - 10:46PM
Dow Jones News
By Anna Isaac and Xie Yu
U.S. stock futures wavered Monday amid concerns that escalating
tensions between Washington and Beijing will further weigh on trade
between the world's two largest economies.
Futures tied to the S&P 500 shifted between small gains and
losses, following rises in European and Asian indexes.
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
between the two countries 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."
In bond markets, the yield on the 10-year U.S. Treasury ticked
up to 0.659%, from 0.650% Friday.
Ahead of the opening bell in New York, drug maker Pfizer fell
6.3% in off-hours trading. The company's shares first dropped after
market close on Friday, when it said that it would stop a potential
breast cancer treatment.
In European stocks, gains on the Stoxx Europe 600 were led by
Associated British Foods, owner of clothing retailer Primark. Its
shares rose nearly 9% after it said it would be opening stores in
coming weeks in response to loosening government lockdowns.
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."
European stocks edged higher at the start of the week, with the
pan-continental Stoxx Europe 600 climbing 0.8%.
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.
Mr. Trump's 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.
Official and private gauges of China's factory activity on
Monday showed manufacturing expanding as more factories reopened
for work in May. The benchmark Shanghai Composite Index added 2.2%
by the close of trading.
In South Korea, the Kospi rose 1.8%, while Japan's Nikkei 225
rose 0.8%.
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.
The results from two surveys of purchasing managers at U.S.
manufacturers will be disclosed at 9:45 a.m. ET and at 10 a.m.
Write to Anna Isaac at anna.isaac@wsj.com and Xie Yu at
Yu.Xie@wsj.com
(END) Dow Jones Newswires
June 01, 2020 08:31 ET (12:31 GMT)
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