US-China row pushes stocks lower
China equities are the region’s worst performers today, following the retreat by Wall Street overnight and rising concerns over the deterioration in US and China relations. The Shanghai Composite, CSI 300 and Hang Seng are all 1.70% lower today.
Wall Street retreat
Wall Street’s leading indices retreated overnight as a weaker jobless number was enough for traders to rush to book profits after a robust week of gains. The S&P 500 fell 1.23%, the Nasdaq fell 2.30%, reflecting the scale of its increases this week and the Dow Jones eased lower by 1.30%. Ex-China, that theme is evident across Asian bourses, which are all lower today.
Australia’s trade-centric and resource-heavy ASX 200 and All Ordinaries are both down 0.90%. The same story is repeating across South East Asia with Singapore, Jakarta and Kuala Lumpur all around 0.80% lower for the day.
The weekend is undoubtedly providing enough potential risk for investors to look to either reduce or hedge it. Progress has been slow on the next US fiscal stimulus package, with the usual Republican-Democrat divide hampering a stimulus package from being finalized. Covid-19 remains a massive concern in the US, and US/China relations appear to be deteriorating at an exponential pace. Concerning the latter, markets appear to be increasingly immune to US/China rhetoric. The underlying belief being that neither will tip into outright trade hostilities and jeopardise the nascent global recovery. Much of the US noise may also be perceived as electioneering.
We expect the weakness to continue into Europe after last night’s jobless claims warning shot and increasing weekend geopolitical risk from Washington DC and China.
With Japan on holiday today, activity in Asia will be somewhat muted. We expect the correction lower in equities and the US dollar to continue as risk is taken off the table ahead of the weekend.