US stocks dropped on Friday, extending losses seen globally, as the spectre of a new flare-up in US-China relations added to concerns over the corporate and economic impact of the coronavirus crisis.
The S&P 500 fell 2.4 per cent in midday trading, while the tech-heavy Nasdaq slid 2.6 per cent.
Donald Trump escalated his attacks against China at a White House coronavirus briefing on Thursday, saying he had seen strong evidence that Covid-19 originated from a laboratory in Wuhan.
The US president also raised the prospect of using tariffs against Beijing, but denied a US media report that he was considering cancelling US debt held by China.
“The last thing the financial markets need now as they grapple with Covid-19 is a renewal of the trade war between the US and China,” said Derek Halpenny, head of European markets research at MUFG.
In London, the FTSE 100 closed down 2.5 per cent while most bourses on continental Europe were closed for a public holiday.
Friday’s dip could mark a turn in sentiment for investors, who have been emboldened of late by hopes of a potential treatment for Covid-19 and the ending of lockdowns in the US and Europe. US stocks in April registered the biggest monthly rally since 1987.
But the mood has darkened at the end of this week, following more weak US jobs data and red flags in the overnight earnings from Amazon and Apple, two pivotal companies in a tech sector that has led the US market’s rebound.
Amazon warned that severe virus-related strain could leave operating income in the second quarter anywhere between a loss and gain of $1.5bn, sending shares down 7 per cent on Friday.
Amazon’s warning, alongside Apple’s decision to withhold guidance for the current quarter, has raised fresh concerns over the corporate impact of the global health crisis. Shares in Apple fell 1.5 per cent before paring back some of the losses.
Data released this week has shown the US economy shrank by its fastest rate since the 2008 financial crisis, while the eurozone’s growth contracted at its quickest pace on record.
“We now have a foretaste of the impact of the virus and the resulting shutdown,” said Bank of America’s global economist Ethan Harris in a note to clients.
China’s experience suggests “a similar or worse outcome” for the US and Europe in the second quarter, he added.
In foreign exchange markets, China’s renminbi weakened to its lowest level since early April against the US dollar as emerging market currencies sold off, while stocks in Asia fell.
The offshore-traded renminbi slipped 0.7 per cent to Rmb7.1299 per dollar, its sharpest move since March.
The Chinese currency “is about to get caught in a fresh US-China imbroglio”, wrote Alan Ruskin, an analyst at Deutsche Bank. “We have reached a particularly sensitive impasse as it relates to the virus narrative, and it is certainly not in China’s interests to encourage currency weakness,” he added.
The S&P/ASX 200 benchmark in Australia, a country heavily exposed to trade with China, dropped 5 per cent, weighed down by miners. Japan’s Topix fell 2.2 per cent, while markets in mainland China, Hong Kong and South Korea were closed for public holidays.
There was a rare moment of relative stability in oil markets. The international benchmark Brent rose more than 4 per cent to $26.35 a barrel, while US marker West Texas Intermediate climbed 2.4 per cent to $19.31.