Global stock rally falters as Hong Kong braces for protests

A rally in global stocks lost steam as investor optimism was tempered by rising US-China tensions and as Hong Kong braced for new anti-government protests.

Hong Kong’s Hang Seng index fell as much as 1 per cent on Wednesday ahead of expected demonstrations against Beijing’s plan to impose a sweeping national security law on the former British colony. A separate Hong Kong bill could result in prison sentences for insulting China’s national anthem.

Overnight on Wall Street, the S&P 500 climbed 1.2 per cent, closing at its highest level since early March as investors were buoyed by hopes that the worst of the coronavirus pandemic had passed. Markets have marched higher in recent weeks as economies around the world have begun easing lockdown measures, as investors pin their hopes on a potential V-shaped rebound in business and industrial activity.

But US stocks pared gains after Larry Kudlow, Donald Trump’s economic adviser, said the president was “miffed” over China’s handling of the Covid-19 health crisis and that Beijing was making a mistake over its implementation of national security laws in Hong Kong. Bloomberg reported that the US was considering a range of sanctions to punish China for its crackdown on Hong Kong, citing unnamed sources.

Investors in Hong Kong, an important global financial hub, are concerned that Washington could retaliate by removing its special trading status with the US.

Ahead of markets opening in Asia, US senator Marco Rubio tweeted that the US State Department would have “no option but to certify that [Hong Kong] is no longer autonomous & sanctions should follow” if China’s rubber-stamp legislature moved forward on the national security law.

The Hang Seng later cut some of its losses to trade 0.8 per cent lower. Elsewhere on Wednesday, China’s CSI 300 of Shanghai- and Shenzhen-listed stocks fell 0.6 per cent. Japan’s Topix index rose 1 per cent while Australia’s ASX/200 fell 0.3 per cent per cent.

China’s onshore-traded renminbi slipped 0.3 per cent to Rmb7.1546 per dollar.

“The renminbi could come under renewed depreciation pressure if the US’s strong response to [the] Hong Kong issue fuelled China-US tensions and triggered the reassessment of the phase one [trade] deal,” said Ken Cheung, chief Asian currency strategist at Mizuho. 

Futures markets tipped stocks in the US and Europe to open higher later in the day with 0.7 per cent gains expected for the S&P 500 and FTSE 100.

Oil prices pulled back after rallying the previous day on reports that Russia’s energy minister had met with the country’s petroleum producers to discuss deeper production cuts in the second half of the year.

Brent crude, the international benchmark, fell 0.7 per cent to $35.92 a barrel, while US marker West Texas Intermediate dropped 0.8 per cent to $34.07.

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