Oil prices tumbled and global equity markets wavered on Friday as China’s move to impose a new security law on Hong Kong further strained U.S.-Sino relations and clouded economic recovery prospects.
News that China also dropped its annual growth target for the first time added to uncertainty about fallout from the COVID-19 pandemic, boosting safe-haven investments such as U.S. Treasuries and the dollar.
Canada’s main stock index finished slightly higher on Friday, despite a drop in energy stocks.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 28.79 points, or 0.19%, at 14,913.64.
The nation’s domestic retail sales fell a record 10% in March as many non-essential businesses were shut down to curb the spread of the COVID-19 pandemic, Statistics Canada said on Friday, and also warned that April data could reveal an even sharper decline.
The energy sector dropped 1.5%, while the financial and industrial sectors slid 0.9%.
Tech stocks rose 2.8%, led by a 5.2% increase in Kinaxis Inc. Shopify Inc. rose 3.2%, while Constellation Software Inc. finished 2.8% higher.
The materials sector, which includes precious and base metal miners and fertilizer companies, added 0.5% as gold futures rose.
Wall Street ended mixed on Friday in a mostly tame finish to a week of strong gains, as investors gauged China-U.S. tensions and amid ongoing uncertainty about the pace of economic recovery from the coronavirus.
President Donald Trump’s warning on Thursday that the U.S. would react strongly to China’s plan for a national security law in Hong Kong has raised concerns over Washington and Beijing’s possibly reneging on their Phase 1 trade deal.
Late in the session, stocks edged lower after the U.S. Commerce Department said it was adding 33 Chinese companies and other institutions to an economic blacklist for human rights violations and to address U.S. national security concerns.
The increasing rhetoric between Washington and Beijing has knocked Wall Street off multi-month highs, although the three main indexes still all rose around 3% for the week, fueled by optimism about an eventual coronavirus vaccine and the easing of virus-related curbs.
“We still think COVID-19 concerns are in the driver’s seat, but we could see U.S.-China relations move back into the front seat,” said Eric Freedman, chief investment officer at U.S. Bank Wealth Management.
U.S. stock exchanges will be closed on Monday for the Memorial Day holiday.
The Nasdaq index is down about 5% from its Feb. 19 record high, helped in recent weeks by gains in Microsoft, Amazon and other heavyweight companies seen coming out of the economic downturn stronger than their smaller rivals.
Real estate led the S&P 500 sector indexes higher, while energy dropped as oil prices sank about 3%.
A drop in Chevron weighed on the Dow.
Unofficially, the Dow Jones Industrial Average fell 8.96 points, or 0.04%, to 24,465.16, the S&P 500 gained 6.94 points, or 0.24%, to 2,955.45, and the Nasdaq Composite added 39.71 points, or 0.43%, to 9,324.59.
“The market just keeps battling higher, it just wants to go higher,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “It’s anticipating improvement and we’ve seen all the bad news.”
Tensions between the world’s two largest economies have risen in recent weeks, with Washington ramping up criticism of China over the origins of the pandemic, raising fears the rhetoric could crimp economic growth.
“You have these doubts over China that is triggering this sell-off in oil, and it’s going to gain steam. If oil sells off, it’s hard to have a strong stock market,” said Ed Moya, senior market analyst at OANDA in New York.
Of major asset classes, crude oil has rebounded the most off the year’s lows on hopes world economies will soon recover from coronavirus-induced business shutdowns, he said, addin that he believed oil’s rally was overdone.
“There’s just too much uncertainty, and that’s going to likely keep on weighing on risk appetite,” Moya said.
MSCI’s all-country world stock index shed 0.48%, while the pan-European STOXX 600 index lost 0.03%.
Earlier in Asia, Hong Kong’s Hang Seng index slid more than 5% to a seven-week low, its biggest daily percentage fall since 2015. MSCI’s broadest index of Asia-Pacific shares outside Japan lost 2.7%; Japan’s Nikkei fell 0.8%.
Analysts said extensive central bank stimulus continues to underpin sentiment and buoy equity markets.
Japan’s central bank unveiled a lending program to channel nearly $280 billion to small businesses hit by the coronavirus. India slashed rates for a second time this year and the European Central Bank, in the minutes from its last meeting, said it was ready to expand emergency bond purchases as early as June.
U.S. crude fell 67 cents to settle at $33.25 a barrel, paring about half earlier losses of more than 5%.
Brent settled at $35.13, down 93 cents on the day.
The dollar index rose 0.33%, with the euro down 0.43% to $1.0902. The Japanese yen strengthened 0.05% versus the greenback at 107.57 per dollar.
Benchmark 10-year U.S. Treasury yields fell 2.4 basis points to 0.6526%. Spot gold added 0.6%.
U.S. gold futures settled up 0.8% at $1,735.50 an ounce.
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